nep-age New Economics Papers
on Economics of Ageing
Issue of 2018‒12‒24
nineteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Putting the pension back in 401(k) retirement plans: Optimal versus default longevity income annuities By Horneff, Vanya; Maurer, Raimond; Mitchell, Olivia S.
  2. The economics of sharing macro-longevity risk By Dirk Broeders; Roel Mehlkopf; Annick van Ool
  3. A nyugdíjrendszer helyzete és finanszírozhatósága By Vértesy, László
  4. Flexible Retirement and Optimal Taxation By Ndiaye, Abdoulaye
  5. Migration with Pension Reform Expectations By Góra, Marek; Ruzik-Sierdzińska, Anna
  6. On Financing Retirement, Health, and Long-term Care in Japan By Ellen R. McGrattan; Kazuaki Miyachi; Adrian Peralta-Alva
  7. Government Transfers, Work and Wellbeing: Evidence from the Russian Old-Age Pension By Grogan, Louise; Summerfield, Fraser
  8. Getting Life Expectancy Estimates Right for Pension Policy: Period versus Cohort Approach By Mercedes Ayuso; Jorge Miguel Bravo; Robert Holzman
  9. Equal long-term care for equal needs with universal and comprehensive coverage? An assessment using Dutch administrative data By Marianne Tenand; Pieter Bakx; Eddy (E.K.A.) van Doorslaer
  10. SeaTE: Subjective ex ante Treatment Effect of Health on Retirement By Pamela Giustinelli; Matthew D. Shapiro
  11. Institutional Reforms and an Incredible Rise in Old Age Employment By Regina T. Riphahn; Rebecca Schrader
  12. Annuity Pricing in Public Pension Plans: Importance of Interest Rates By Nino Abashidze; Robert L. Clark; Beth Ritter; David Vanderweide
  13. Estimating Family Preferences for Elder-care Services: A conjoint-survey experiment in Japan By KANEKO Shinji; KAWATA Keisuke; YIN Ting
  14. The Effect of College Education on Health and Mortality: Evidence from Canada By Guy Lacroix; Francois LalibertŽe-Auger; Pierre-Carl Michaud; Daniel Parent
  15. Does Money Relieve Depression? Evidence from Social Pension Expansions in China By Chen, Xi; Wang, Tianyu; Busch, Susan H.
  16. Money and Meaning: How working-age social security benefit recipients understand and use their money By Kate Summers
  17. The Performance of US Hospitals as Reflected in Risk-Standardized 30-Day Mortality and Readmission Rates for Medicare Beneficiaries with Pneumonia By Peter K. Lindenauer; Susannah M. Bernheim; Jacqueline N. Grady; Zhenqiu Lin; Yun Wang; Yongfei Wang; Angela R. Merrill; Lein F. Han; Michael T. Rapp; Elizabeth E. Drye; Sharon-Lise T. Normand; Harlan M. Krumholz
  18. Utilisation of personal care services in Scotland: the influence of unpaid carers By Elizabeth Lemmon
  19. Macroeconomic Effects of Japan’s Demographics: Can Structural Reforms Reverse Them? By Mariana Colacelli; Emilio Fernández Corugedo

  1. By: Horneff, Vanya; Maurer, Raimond; Mitchell, Olivia S.
    Abstract: A recent US Treasury regulation allowed deferred longevity income annuities to be included in pension plan menus as a default payout solution, yet little research has investigated whether more people should convert some of the $15 trillion they hold in employer-based defined contribution plans into lifelong income streams. We investigate this innovation using a calibrated lifecycle consumption and portfolio choice model embodying realistic institutional considerations. Our welfare analysis shows that defaulting a small portion of retirees' 401(k) assets (over a threshold) is an attractive way to enhance retirement security, enhancing welfare by up to 20% of retiree plan accruals.
    Keywords: life cycle saving,household finance,annuity,longevity risk,401(k) plan,retirement
    JEL: G11 G22 D14 D91
    Date: 2018
  2. By: Dirk Broeders; Roel Mehlkopf; Annick van Ool
    Abstract: Pension funds face macro-longevity risk or uncertainty about future mortality rates. We analyze macro-longevity risk sharing between cohorts in a pension fund as a risk management tool. We show that both the optimal risk-sharing rule and the welfare gains from risk sharing depend on the retirement age policy. Welfare gains from sharing macro-longevity risk measured on a 10-year horizon in case of a fixed retirement age are between 0.2 and 0.3 percent of certainty equivalent consumption after retirement. Cohorts experience a similar impact of macro-longevity risk on post retirement consumption and it is not optimal for young cohorts to absorb risk of older cohorts. However, in case the retirement age is fully linked to changes in life expectancy, the welfare gains are substantially higher. The risk bearing capacity of workers is larger when they use their labor supply as a hedge against macro-longevity risk. As a result, workers absorb risk from retirees in the optimal risk-sharing rule, thereby increasing the welfare gain up to 2.7 percent.
    Keywords: Macro-longevity risk; risk sharing; welfare analysis; retirement age
    JEL: D61 G22 J26 J32
    Date: 2018–12
  3. By: Vértesy, László
    Abstract: As a result of the demographic processes, one of the major challenges facing aging societies is to ensure long-term and sustainable funding for old-age care. The Hungarian pension system is basically stagnating, and the political competition focuses only on welfare corrections, shattering the real and increasingly threatening threats. In recent years, however, several detailed studies and analyses have been published, which, according to internationally accepted norms of economics, anticipate the gradual lack of the Hungarian pension system. The analysis covers the following topics: legal and institutional background, retirement demographics, real value of pensions, reforms and problems affecting the pension system (private pension funds, reduced retirement opportunities, raising age pension fund ceiling, one-person personal income), pension funding and institutional system.
    Keywords: pension system, pensions, demography
    JEL: H55 H75 J11
    Date: 2018–10
  4. By: Ndiaye, Abdoulaye (Federal Reserve Bank of Chicago)
    Abstract: This paper studies optimal insurance against private idiosyncratic shocks in a life-cycle model with intensive labor supply and endogenous retirement. In this environment, the optimal labor tax is hump-shaped in age: insurance benefits of taxation push for increasing-in-age taxes while rising labor supply elasticities and optimal late retirement of highly productive workers push for lowering taxes for old workers. In calibrated numerical simulations, the optimum achieves sizable welfare gains that age-dependent taxes do not deliver under the status quo US Social Security. Nevertheless, an optimal combination of age-dependent linear taxes with increasing-in-age retirement benefits generates welfare gains close to optimal.
    Keywords: Retirement; Optimal Taxation; Social Security; Continuous- Time; Optimal Stopping
    JEL: H21 H55 J26
    Date: 2017–11–03
  5. By: Góra, Marek (Warsaw School of Economics); Ruzik-Sierdzińska, Anna (Warsaw School of Economics)
    Abstract: Pension reforms, which imply a reduction in the generosity of pension benefits, are becoming widespread in response to the demographic transition. The scale, the timing, and the pace of these reforms vary across countries. In this theoretical article, authors analyse individual migration decisions, by adding a component linked to the expected old-age pension benefits in sending and receiving countries in two cases: when the pension system rules are known, and when there is a risk of the pension systems reforms. The results indicate that when individuals fail to take future pension wealth into account, they can make sub-optimal migration decisions.
    Keywords: migration decision, pension benefits, pension reforms, institutional uncertainty
    JEL: F22 J24 J26 J61
    Date: 2018–11
  6. By: Ellen R. McGrattan; Kazuaki Miyachi; Adrian Peralta-Alva
    Abstract: Japan faces the problem of how to finance retirement, health, and long-term care expenditures as the population ages. This paper analyzes the impact of policy options intended to address this problem by employing a dynamic general equilibrium overlapping generations model, specifically parameterized to match both the macroeconomic and microeconomic level data of Japan. We find that financing the costs of aging through gradual increases in the consumption tax rate delivers a better macroeconomic performance and higher welfare for most individuals than other financing options, including those of raising social security contributions, debt financing, and a uniform increase in health and long-term care copayments.
    Date: 2018–11–28
  7. By: Grogan, Louise (University of Guelph); Summerfield, Fraser (University of Aberdeen)
    Abstract: This paper examines the impacts of a large and anticipated government transfer, the Russian old-age pension, on labor supply, home production and subjective wellbeing. The discontinuity in eligibility at pension age is exploited for inference. The 2006-2011 Russian Longitudinal Monitoring Survey is employed. Causal impacts differ across the sexes. Women reduce market work and appear to increase home production. They report increased wellbeing. Men reduce labor supply without any apparent increase in wellbeing. Pension receipt does not impact household composition.
    Keywords: fuzzy regression discontinuity, subjective wellbeing, pensions, labor supply
    JEL: I31 J22 J26 Z13
    Date: 2018–11
  8. By: Mercedes Ayuso; Jorge Miguel Bravo; Robert Holzman
    Abstract: In many policy areas it is essential to use the best estimates of life expectancy, but it is vital to most areas of pension policy. This paper presents the conceptual differences between static period and dynamic cohort mortality tables, estimates the differences in life expectancy for Portugal and Spain, and compares official estimates of both life expectancy estimates for Australia, the United Kingdom, and the United States for 1981, 2010, and 2060. These comparisons reveal major differences between period and cohort life expectancy in and between countries and across years. The implications of using wrong estimates for pension policy, including financial sustainability, are explored.
    Keywords: cross-country comparison, Lee-Carter, life expectancy indexation, balancing mechanism
    JEL: G22 H55 J14
    Date: 2018
  9. By: Marianne Tenand (Erasmus University Rotterdam); Pieter Bakx (Erasmus University Rotterdam); Eddy (E.K.A.) van Doorslaer (Erasmus University Rotterdam)
    Abstract: The Netherlands is one of the few countries that offer generous universal coverage of long-term care (LTC). Does this ensure that the Dutch elderly with similar care needs receive similar LTC, irrespective of their income? In contrast with previous studies of inequity in care use that relied on a statistically derived variable of needs, our paper exploits a readily available, administrative measure of LTC needs, stemming from the eligibility assessment organized by the Dutch LTC assessment agency. Using exhaustive administrative register data on 616,934 individuals aged 60 and older eligible for public LTC, we find a substantial pro-poor concentration of LTC use that is only partially explained by poorer individuals’ greater needs. Among those eligible for institutional care, higher-income individuals are more likely to use – less costly – home care. This pattern may be explained by differences in preferences, but also by their higher copayments for nursing homes and by greater feasibility of home-based LTC arrangements for richer elderly. At face value, our findings suggest that the Dutch LTC insurance ‘overshoots’ its target to ensure that LTC is accessible to poorer elderly. Yet, the implications depend on the origins of the difference and one’s normative stance.
    Keywords: Long-term care; Equity in care use; Horizontal equity; Socio-economic inequality
    JEL: J14 I14 D63
    Date: 2018–12–13
  10. By: Pamela Giustinelli (Bocconi University, IGIER, and LEAP); Matthew D. Shapiro (University of Michigan and NBER)
    Abstract: This paper develops an innovative approach to measuring the effect of health on retirement. The approach elicits subjective probabilities of working at specified time horizons fixing health level. Using a treatment-effect framework, within-individual differences in elicited probabilities of working given health yield individual-level estimates of the causal effect of health (the treatment) on working (the outcome). We call this effect the Subjective ex ante Treatment Effect (SeaTE). The paper then develops a dynamic programming framework for the SeaTE. This framework allows measurement of individual-level value functions that map directly into the dynamic programming model commonly used in structural microeconometric analysis of retirement. The paper analyzes conditional probabilities elicited in the Vanguard Research Initiative (VRI)—a survey of older Americans with positive assets. Among workers 58 and older, a shift from high to low health would on average reduce the odds of working by 28.5 percentage points at a two-year horizon and 25.7 percentage points at a four-year horizon. There is substantial variability across individuals around these average SeaTEs, so there is substantial heterogeneity in taste for work or returns to work. This heterogeneity would be normally unobservable and hard to disentangle from other determinants of retirement in data on realized labor supply decisions and health states. The paper’s approach can overcome the problem that estimates of the effect of health on labor supply based on behavioral (realizations) data can easily overstate the effect of health on retirement whenever less healthy workers tend to retire earlier for reasons other than health.
    Date: 2018–02
  11. By: Regina T. Riphahn; Rebecca Schrader
    Abstract: We investigate whether a cut in unemployment benefit payout periods affected older workers’ labor market transitions. We apply rich administrative data and exploit a difference-indifferences approach. We compare the reference group of 40-44 year olds with constant benefit payout periods to older treatment groups with reduced payout durations. For the latter job exit rates declined, job finding rates increased, the propensity to remain employed increased, and the propensity to remain unemployed declined after the reform. These patterns suggest that the reform of unemployment benefits may be one of the reasons behind the recent incredible rise in old age employment in Germany.
    Keywords: labor force participation, employment, unemployment insurance, retirement
    JEL: J14 J26
    Date: 2018
  12. By: Nino Abashidze; Robert L. Clark; Beth Ritter; David Vanderweide
    Abstract: There is little systematic information on the distribution options in public sector retirement plans and how annuity options are priced relative to the standard single life annuity. This study examines the distribution options of 85 large public retirement plans covering general state employees, teachers, and local government employees. An important component of the analysis is the construction of a data set presenting the annuity options offered by each of these plans and how the monthly benefits for these distribution options are priced. The analysis shows that interest rates used to price annuities vary considerably across the plans. As a result, retirees with the same monthly benefit if a single life benefit is chosen will have substantially different monthly benefits if they select the joint and survivor annuity offered by their retirement plan.
    JEL: H7 J26 J45
    Date: 2018–12
  13. By: KANEKO Shinji; KAWATA Keisuke; YIN Ting
    Abstract: The paper provides a preference evaluation for elderly-care services, based on a conjoint survey and a rational-choice framework. For the empirical section, we conducted a conjoint survey with Japanese respondents to estimate preferences of elderly-care services. Our findings show that room sharing is the most important for both demand and consumer surplus, and it is justified to assist households in using elderly-care facilities at a middle distance with additional health-care services.
    Date: 2018–12
  14. By: Guy Lacroix; Francois LalibertŽe-Auger; Pierre-Carl Michaud; Daniel Parent
    Abstract: We investigate the returns to college attendance in Canada in terms of health and mortality reduction. To do so, we first use a dynamic health microsimulation model to document how inter-ventions which incentivize college attendance among high school graduates may impact their health trajectory, health care consumption and life expectancy. We find large returns both in terms of longevity (4.1 years additional years at age 51), reduction in the prevalence of various health conditions (10-15 percentage points reduction in diabetes and 5 percentage points for stroke) and health care consumption (27.3% reduction in lifetime hospital stays, 19.7 for specialists). We find that education impacts mortality mostly by delaying the incidence of health conditions as well as providing a survival advantage conditional on having diseases. Second, we provide qua-si-experimental evidence on the impact of college attendance on long- term health outcomes by exploiting the Canadian Veteran's Rehabilitation Act, a program targeted towards returning WW-II veterans and which incentivized college attendance. The impact on mortality are found to be larger than those estimated from the health microsimulation model (hazard ratio of 0.216 com-pared to 0.6 in the simulation model) which suggest substantial returns to college education in terms of healthy life extension which we estimate around one million canadian dollars.
    Keywords: mortality, education, microsimulation, quasi-experimental, instrumental variables, veterans
    JEL: I14
    Date: 2018
  15. By: Chen, Xi; Wang, Tianyu; Busch, Susan H.
    Abstract: We estimate the impact of pension enrollment on mental well-being using China’s New Rural Pension Scheme (NRPS), the largest existing pension program in the world. Since its launch in 2009, more than 400 million Chinese have enrolled in the NRPS. We first describe plausible pathways through which pension may affect mental health. We then use the national sample of China Family Panel Studies (CFPS) to examine the effect of pension enrollment on mental health, as measured by CES-D and self-reported depressive symptoms. To overcome the endogeneity of pension enrollment or of income change on mental health, we exploit geographic variation in pension program implementation. Results indicate modest to large reductions in depressive symptoms due to pension enrollment; this effect is more pronounced among individuals eligible to claim pension income, among populations with more financial constraints, and among those with worse baseline mental health. Our findings hold for a rich set of robustness checks and falsification tests.
    Keywords: pension enrollment,pension income,depression,mental health,older populations
    JEL: H55 I18 I38 J14
    Date: 2018
  16. By: Kate Summers
    Keywords: Universal Credit, benefits, working-age, unemployment, stigma, social security
    Date: 2018–12
  17. By: Peter K. Lindenauer; Susannah M. Bernheim; Jacqueline N. Grady; Zhenqiu Lin; Yun Wang; Yongfei Wang; Angela R. Merrill; Lein F. Han; Michael T. Rapp; Elizabeth E. Drye; Sharon-Lise T. Normand; Harlan M. Krumholz
    Abstract: Using hospital and outpatient Medicare claims between 2006 and 2009, this cross-sectional study describes patterns of hospital and regional performance in the outcomes of elderly patients with pneumonia, a leading cause of hospitalization and death in this population.
    Keywords: Community-Acquired and Nosocomial Pneumonia , Quality Improvement , Outcomes Measurement , Patient Safety, Geriatric Patient
    JEL: I
  18. By: Elizabeth Lemmon (University of Stirling)
    Abstract: Unpaid carers may have an influence on the formal care utilisation of the cared for. Whether this influence is positive or negative will have important implications for the costs of formal care provision. The relationship between unpaid and formal care is of particular importance in Scotland, where personal care is provided for free by Local Authorities, to individuals aged 65+. The existing evidence on the impact of unpaid care on formal care utilisation is extremely mixed, and there is currently no evidence for Scotland. This paper is the first to investigate how the presence of an unpaid carer influences personal care use by those aged 65+ in Scotland, using a unique administrative dataset not previously used in research. Specifically, it uses the Scottish Social Care Survey (SCS) from 2015 and 2016 and compares Ordinary Least Squares (OLS), Generalised Linear Models (GLM), and Two-Part Models (2PM). The results suggest that unpaid care complements personal care services and this finding is robust to a number of sensitivity analyses. This finding may imply that incentivising unpaid care could increase formal care costs, and at the same time it points to the potential for unmet need of those who do not have an unpaid carer. Due to the limitations of the data, future research is necessary.
    Keywords: unpaid, care, informal, formal, substitution, complementary, elderly
    JEL: I11 I12 J14
  19. By: Mariana Colacelli; Emilio Fernández Corugedo
    Abstract: Yes, partly. This paper studies the potential role of structural reforms in improving Japan’s outlook using the IMF’s Global Integrated Monetary and Fiscal Model (GIMF) with newly-added demographic features. Implementation of a not-fully-believed path of structural reforms can significantly offset the adverse effect of Japan’s demographic headwinds — a declining and ageing population — on real GDP (by about 15 percent in the next 40 years), but would not boost inflation or contribute substantially to stabilizing public debt. Alternatively, implementation of a fully-credible structural reform program can contribute significantly to stabilizing public debt because of the resulting increase in inflation towards the Bank of Japan’s target, while achieving the same positive long-run effects on real GDP. If no reforms are implemented, severe demographic headwinds are expected to reduce Japan’s real GDP by over 25 percent in the next 40 years.
    Keywords: Asia and Pacific;Japan;Government expenditures and health;Structural reforms, demographics, OLG models, Forecasting and Simulation, General, General, Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets
    Date: 2018–11–28

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