nep-age New Economics Papers
on Economics of Ageing
Issue of 2019‒09‒23
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The interplay between trade unions and the social security system in an aging economy By Friese, Max
  2. Labour market reform in Japan to cope with a shrinking and ageing population By Randall S. Jones; Haruki Seitani
  3. No country for old men? Increasing the retirement age in the Armed Forces By Hanson, Torbjørn; Lindgren, Petter Y.
  4. Intergenerational Conflict Over Consumption Tax Hike: Evidence from Japan By Ryosuke Okazawa; Katsuya Takii
  5. Aging and smart independent living in Dutch rural areas By Hieke Van der Kloet
  6. Carbon footprint, demography, and employment statusunion? By Carlhoff, Henrik
  7. Save, Spend or Give? A Model of Housing, Family Insurance, and Savings in Old Age By Daniel Barczyk; Matthias Kredler; Sean Fahle
  8. Time-inconsistent health behavior and its impact on aging and longevity By Strulik, Holger; Werner, Katharina
  9. Rational Inattention and Oversensitivity of Retirement to the State Pension Age By Jamie Hentall MacCuish
  10. “Do elderly people living in rural areas enjoy better mental well-being? Evidence from Catalonia, Spain” By Manuela Alcañiz; Maria-Carme Riera-Prunera; Manuela Alcañiz
  11. Social Security Reform in the Presence of Informality By Kathleen McKiernan
  12. Meeting fiscal challenges in Japan’s rapidly ageing society By Randall S. Jones; Haruki Seitani
  13. How do participants understand and interpret questions about 'retirement planning'? By Abbassian, Lindsay; Beth, Dokal; Joyce, Lucy; Pudney, Stephen; Kanabar, Ricky; Gush, Karon; Burton, Jonathan
  14. The changing opportunities and outcomes of non-college educated Americans By Margherita Borella; Fang Yang; Mariacristina De Nardi
  15. Solitary, merge or collaborate. Determinants of collaboration of elderly care organizations : A case survey approach By Van Den Oord, Steven; Braes, Tom; Cambré, B.; Kenis, Patrick
  16. Pension savings: A key question about returns By De Koning, Kees

  1. By: Friese, Max
    Abstract: This paper investigates how demographic change affects the financial sustainability of a defined benefit pay-as-you-go social security system in an environment with collective bargaining on the labor market. Temporary equilibrium analysis shows that the contribution rate decreases, if the old-age dependency ratio rises. The government balances the social security budget by aiming indirectly at a higher level of employment. In the intertemporal equilibrium the opposite applies. The government increases the contribution rate due to additional effects of demographic change on capital accumulation and labor demand. In contrast to a perfect labor market scenario, the imposed financing burden from an aging society is overcompensated by favorable labor market effects on the social security budget.
    Keywords: demographic change,PAYG pension,social security,trade union,collective bargaining,unemployment
    JEL: E24 H55 J11 J51
    Date: 2019
  2. By: Randall S. Jones; Haruki Seitani
    Abstract: Fundamental reform of traditional Japanese labour market practices is essential to cope with rapid population ageing and the era of 100-year lives. A shift to more flexible employment and wage systems based on performance rather than age would enable Japan to better utilise its human capital. Abolishing the right of firms to set mandatory retirement – typically at age 60 – would enable employees to extend their careers and reduce the link between wages and seniority. It would also facilitate a further increase in the pension eligibility age above 65, thereby helping to reduce poverty among the elderly. Life-long learning is another key element to extending careers. It is also crucial to address a range of issues that discourage the employment of women, namely the lack of work-life balance and shortages of high quality and affordable childcare and long-term care for the elderly. Fighting discrimination and gender stereotypes is also important to allow women to assume greater leadership roles. Coping with population decline also requires pursuing recent efforts to increase the role of foreign workers in Japan. Breaking down labour market dualism is crucial to expand employment opportunities for women and older people, while reducing income inequality and relative poverty.This Working Paper relates to the 2019 OECD Economic Survey of Japan( economic-snapshot/)
    Keywords: childcare, dualism, female employment, foreign workers, Japanese economy, labour force participation, labour market, labour shortages, lifelong learning, mandatory retirement, non-regular workers, older workers, pension eligibility age, population ageing, womenomics, work-life balance
    JEL: J2 J3 J7 J8
    Date: 2019–09–18
  3. By: Hanson, Torbjørn; Lindgren, Petter Y.
    Abstract: An ageing workforce due to low fertility rates and higher life expectancies challenges modern industrialized economies. To secure economic welfare and the balance of public budgets, governments worldwide implement reforms to increase the retirement age. This trend towards higher retirement age confronts a defense sector that for centuries has been in search of an age structure characterized by ‘youth and vigor’. We study the economic gains to society from increasing the special retirement age for military personnel in the Norwegian Armed Forces. By combining the literatures on pension, personnel, and military economics, we identify mechanisms crucial to the outcome of a special retirement age reform. Monte Carlo simulation is applied to illustrate the potential impact on the economic net gains of uncertain variables. We find that an increase in the retirement age provides substantial net benefits to society, even under fairly negative assumptions about the consequences for retention, motivation and efforts, and the value of elderly personnel in the Armed Forces.
    Keywords: Cost-benefit analysis, retirement age, military personnel, productivity, labor economics, human resources
    JEL: D61 H55 J08 M50
    Date: 2019–09
  4. By: Ryosuke Okazawa (Graduate School of Economics, Osaka City University); Katsuya Takii (Osaka School of International Public Policy, Osaka University)
    Abstract: This paper analyzes the determinants of voter preferences on consumption tax hike using an opinion survey of Japanese citizens. We find robust evidence that the older voter is more likely to support consumption tax hike. We also find that the most of inter-generational difference toward consumption tax policy is explained by the gap between citizens under sixty and over sixty. We investigate how individual economic environment changes in 60 years old as a result of mandatory retirement system and pension system and find that the hours of work do not change but their degree of dependence on the pension in household income increases at the age of 60. Utilizing these facts, we conjecture that individuals may realize the importance of consumption tax in order to save the value of their assets.
    Keywords: Consumption Tax, Fiscal Consolidation, Pension, RDD
    JEL: E6 H2 H31 H63
    Date: 2019–09
  5. By: Hieke Van der Kloet
    Abstract: According to the Dutch housing policy for the elderly independent living is the future way of life: stay at home longer when you get older. As a consequence the aging population in the Netherlands indeed lives less in institutions the last years. The general insight is that aging residents prefer to stay independent at their own home. However it is known the aging population process is the largest in the periphery of the Netherlands. This might be no problem as in general the dwellings in rural areas seems suitable, in the sense that a residence is accessible and through accessible without climbing stairs to the main dwelling rooms. The main challenge for the elderly in these areas is –if this is needed- the care and support at home. In general the moving mobility in the Netherlands is rather low, especially among the elderly and in particular among older owner-occupiers. As a consequence older owner-occupiers live independently for longer than tenants. Older owner-occupiers and tenants live on average more than twenty years in the same neighbourhood whereas owner-occupiers of 65 years and older even live five years longer in the same area. Precisely this last group -mostly living in a land-bound property- strongly increases in the Netherlands the last years. Therefore our first research question is: Why stay in your own dwelling in a peripheral area if you ‘re getting older and might be in need of care or have to deal with a diminishing health? Are older homeowners more attached to their home in the course of time or are they forced to stay because of the declining housing prices in these regions?The second question concerns the homeowner who decides to stay in the region independently as long as possible. How can you manage to stay at your own home if you live at the countryside and need care? Which needs do aging people have to live longer independently in their own home? Which ICT and smart home technology do they –according to themselves- need now and in future?Our study aims to contribute to the research on the motivations of older owner-occupiers in peripheral regions of the Netherlands for staying independent at their own home as long as possible. Another goal is to improve the living conditions of aging people maybe with help of smart home technology and house adjustments so they live independently as long as possible in their own home.First of all we want to declare why older owner-occupiers stay in a peripheral or depopulating region. Why would they stay in a region with less facilities? We use a mixed-methods approach for data collection starting with desk research, data-analysis of e.g. the European Quality of Life Survey, focus group discussion and semi-structured interviews with aging people living in different regions in the Netherlands. Our results show that the majority of the interviewees mostly has no problems with independent living. According to themselves they have adequate solutions for staying at home as long as possible. Most respondents have a positive attitude towards ICT-adjustments and smart home technology to overcome moving difficulties, feeling comfortable and save at home now and in the future.From the results we conclude that most of the interviewed respondents -according to themselves- are well equipped, prefer to stay independent at their own home and don’t want to move to an institution.Advise to the Dutch government is to support the older residents of the rural regions to stay at their own homes maybe with help of smart home technology. For sustainability of the communities in these peripheral areas (access to) fast Internet is the most important condition. This will help to improve the regional development and attractiveness of areas that are effected by depopulation.
    Keywords: Aging; Independent living; Rural areas; Smart home technology; Stayers/Immobility
    JEL: R3
    Date: 2019–01–01
  6. By: Carlhoff, Henrik
    Abstract: This paper investigates the interplay between aging of a society and its carbon dioxide emissions. The existing literature based on US data predicts lower overall emissions due to the lower emission intensity of consumption of a growing old-age share of the population. This conjecture is reexamined by a multivariate approach. The underlying hypothesis is that the individual levels of emissions do not only depend on age but also on income and employment status, which are correlated with age. Thus, bivariate analyses, neglecting other relevant variables, might overstate the decline in emissions for older cohorts. The paper shows that this hypothesis is correct. A bivariate approach overestimates the decline of emissions caused by population aging. Policy decisions favoring a longer work life may reverse the dampening effect of aging on emissions.
    JEL: J11 Q54
    Date: 2019
  7. By: Daniel Barczyk (McGill University); Matthias Kredler (Universidad Carlos III Madrid); Sean Fahle (SUNY Buffalo)
    Abstract: We propose that interactions among old-age risks, housing, and family insurance are key for understanding the economic behavior of the elderly. Empirically, we find that homeownership reduces dis-saving while increasing the likelihood and persistence of informal care from children, which in turn protects bequests by preventing nursing home entry. Nonetheless, elderly parents and the childless display strikingly similar savings and bequests. Additionally, we calculate that one-fourth of transfers from retired parents to children flow before death. We build a dynamic model featuring strategic interactions between imperfectly-altruistic parent and child households, a housing choice, and long-term-care risk. The model successfully rationalizes our empirical findings. Homes are valuable for inducing care from children, accounting for 10% of ownership. Although the childless have no altruistic motive for saving, they resemble parents because they lack family insurance and thus have a stronger precautionary motive. Parents withhold most transfers until death for strategic reasons.
    Date: 2019
  8. By: Strulik, Holger; Werner, Katharina
    Abstract: We integrate time-inconsistent decision making due to hyperbolic discounting into a gerontologically founded life cycle model with endogenous aging and longevity. Individuals can slow down aging and postpone death by health investments and by reducing unhealthy consumption, conceptualized as smoking. We show that individuals continuously revise their original plans to smoke less and invest more in their health. Consequently, they accumulate health deficits faster and die earlier than originally planned. This fundamental health consequence of time-inconsistency has not been addressed in the literature so far. Because death is endogenous, any attempt to establish the time-consistent first-best solution by manipulating the first order conditions through (sin-) taxes and subsidies is bound to fail. We calibrate the model with U.S. data for an average American in the year 2010 and estimate that time-inconsistent health behavior causes a loss of about 5 years of life. We show how price policy can nudge individuals to behave more healthy such that they actually realize the longevity and value of life planned at age 20.
    Keywords: present bias,time-inconsistency,health behavior,aging,longevity,health policy
    JEL: D03 D11 D91 I10 I12
    Date: 2019
  9. By: Jamie Hentall MacCuish (University College London)
    Abstract: This paper presents evidence that incorporating costly thought, modelled with rational inattention, solves two well-established puzzles in the retirement literature. The first puzzle is that, given incentives, the extent of bunching of labour market exits at legislated state pension ages (SPA) seems incompatible with rational expectations (e.g. Cribb, Emmerson, and Tetlow, 2016). Adding to the evidence for this puzzle, this paper includes an empirical analysis focusing on whether liquidity constraints can account for this bunching and finds they cannot. The nature of this puzzle is clarified by exploring a life-cycle model with rational agents that does match aggregate profiles. This model succeeds in matching these aggregates only by overestimating the impact of the SPA on poorer individuals whilst underestimating its impact on wealthier people. The second puzzle is that people are often mistaken about their own pension provisions (e.g. Gustman and Steinmeier, 2001). Concerning this second puzzle, I incorporate rational inattention to the SPA into the aforementioned life-cycle model, thus allowing for mistaken beliefs. To the best of my knowledge, this paper is the first to incorporate rational inattention into a life-cycle model. Rational inattention not only improves the aggregate fit of the data but better matches the response of participation to the SPA across the wealth distribution, hence simultaneously offering a resolution to the first puzzle. This paper researches these puzzles in the context of the ongoing reform to the UK female state pension age
    Date: 2019
  10. By: Manuela Alcañiz (Riskcenter, Department of Econometrics, Statistics and Applied Economy Universitat de Barcelona. Av. Diagonal 690, 08034 Barcelona, Spain); Maria-Carme Riera-Prunera (Riskcenter, Department of Econometrics, Statistics and Applied Economy Universitat de Barcelona. Av. Diagonal 690, 08034 Barcelona, Spain); Manuela Alcañiz (Riskcenter, Department of Econometrics, Statistics and Applied Economy Universitat de Barcelona. Av. Diagonal 690, 08034 Barcelona, Spain)
    Abstract: Despite its relevance, the effect of rurality/territory on the emotional well-being of the elderly population has not been analyzed in depth. This work examines the influence of fixed and modifiable risk factors on emotional well-being at older ages with a special attention on the level of rurality in the environment. A population-based sample of 2,621 individuals aged 65-plus from Catalonia (Spain) is used. Cross-sectional data from 2015 to 2017 were provided by an official face-to-face survey. Based on a logistic regression, our results indicate that residing in a densely populated urban area reduces mental well-being in the elderly. More factors were found to be related to emotional well-being, especially those referred to functional limitations, social support and health burden. Health officials have to ensure that people enjoy a good quality of life during their last years of life.
    Keywords: Mental well-being, Rurality, Longevity, Spain. JEL classification:I31.
    Date: 2019–07
  11. By: Kathleen McKiernan (Vanderbilt University)
    Abstract: As populations age, countries across the globe are dealing with the issue of how to fund retirement consumption for their workers. The design of Social Security programs is more difficult when the country also exhibits an informal economy in which workers avoid the taxation of the government and are not entitled to its benefits. In this paper, I study the example of Chile–a country that transitioned from a pay-as-you-go Social Security system to a system of private, individual retirement accounts in 1981 and also exhibits a significant informal sector– in order to quantify the transitional welfare impact of Social Security privatization when workers have the option to evade the public system through informality. I construct an OLG model which allows households to split working time between a taxed formal sector, an un-taxed informal sector, and home production. I find large long-run welfare gains of roughly 10 and 15 percent for low and high-productivity workers, respectively. However, these gains come at the expense of losses for two groups: those low-productivity workers who are retired at the time of the reform and those high-productivity workers within 5 years of retirement at the time of the reform. The presence of informality has two conflicting impacts: (1) including an outside option to formal work leads to smaller long-run transfers as government revenue is lower due to substitution from the formal to the informal sector, and (2) the privatization of the Social Security system causes wage growth that informal workers can receive without facing the distortions of any remaining taxation. Quantitative results indicate that these conflicting effects roughly cancel one another out and lead to long-run welfare gains that are similar to those in an economy without informality.
    Date: 2019
  12. By: Randall S. Jones; Haruki Seitani
    Abstract: Japan’s gross government debt of 226% of GDP in 2018 is the highest ever recorded in the OECD area, and places the economy at risk. The government now aims to achieve a primary surplus by FY 2025. Additional fiscal consolidation, based on a detailed plan covering specific spending cuts and tax increases, is necessary to put the government debt ratio on a downward trend in the face of rapid population ageing. This is a very difficult task and a stronger fiscal framework would help keep policy on track to achieve fiscal targets. Controlling social spending requires making better use of healthcare resources, in p art by reducing overinvestment in hospitals and increasing the use of generic drugs. Another priority is ensuring the sustainability of local government spending, in part by reducing costs through the joint provision of local public services and infrastructure across jurisdictions and the development of compact cities in the context of depopulation in many parts of Japan. Increased revenue should come primarily from hikes in the consumption tax rate, which is among the lowest in the OECD. In addition, disincentives to employment in the tax and benefit system should be removed, as sustained economic growth is crucial to ensure fiscal sustainability.This Working Paper relates to the 2019 OECD Economic Survey of Japan ( mic-snapshot/)
    Keywords: Abenomics, compact cities, consumption tax, EITC, fiscal consolidation, fiscal policy, fiscal sustainability, healthcare, independent fiscal councils, inequality, local governments, long-term care, pensions, poverty, public debt, social security, unidentified landowners
    JEL: H2 H5 H7 I18
    Date: 2019–09–18
  13. By: Abbassian, Lindsay; Beth, Dokal; Joyce, Lucy; Pudney, Stephen; Kanabar, Ricky; Gush, Karon; Burton, Jonathan
    Abstract: ISER commissioned Kantar to conduct cognitive testing followed by a short qualitative discussion to support the development of the retirement planning module. The cognitive testing explored how participants understood and interpreted questions in the module to identify any barriers to responding and potential areas for improvement. The qualitative discussion captured broader views on and experiences of planning for retirement. The idealised version of retirement evoked ideas of personal and financial freedom, which did not align to participants' expectations of the own retirement.
    Date: 2019–09–19
  14. By: Margherita Borella (Unversity of Torino and and CeRP-Collegio Carlo Alberto); Fang Yang (Louisiana State University); Mariacristina De Nardi (Minneapolis Fed, UCL, CEPR, and NBER)
    Abstract: We show that white, non-college-educated Americans born in the 1960s face lower life expectancies and higher medical expenses compared to those born in the 1940s. In addition, men's wages for each unit of human capital declined much more than women's across these cohorts. We calibrate a life-cycle model of couples and singles to match the labor market and savings outcomes of the white, non-college-educated 1960s cohort and use it to evaluate the effects of these changes. The changes in wages depressed the labor supply of men and increased that of women, especially in married couples. The decrease in life expectancy reduced retirement savings but the increase in out-of-pocket medical expenses increased them by more. Single men experienced the largest welfare losses, requiring a one-time asset compensation corresponding to 12.5% of the present discounted value of their earnings. Single women experienced a 7.2% welfare loss. Couples had a welfare loss of 8%. Lower wages explain 47-58% of these losses, shorter life expectancies explain 25-34%, and higher medical expenses account for the rest.
    Date: 2019
  15. By: Van Den Oord, Steven; Braes, Tom; Cambré, B. (Tilburg University, School of Economics and Management); Kenis, Patrick (Tilburg University, School of Economics and Management)
    Date: 2018
  16. By: De Koning, Kees
    Abstract: The two key financial decisions that nearly all households have to make are related to a place to live (especially if this involves a mortgage), and the savings needed to have an acceptable income during retirement: pension savings. In a previous paper: “After the Great Recession: the Laws of Unintended Consequences” the writer sets outs the impact on U.S. mortgage holders as a result of the U.S. financial crisis of 2007-2008. This paper will explore the situation in the Eurozone countries (which share one base rate for the Euro, but have fundamentally different inflation rates and government bond yields) after first examining the links between the U.S. financial crisis and the pensions crisis in Europe. Pension savings, by their very nature, represent postponed expenditure. This raises a number of issues: what are the returns going to be? Should such savings be made in collective vehicles - like pension funds, either company or industry wide ones - or in individual accounts? Setting aside savings for future pension payments automatically affects an individual’s current spending levels. The reward for postponing current spending depends mainly on Central Banks’ and Governments’ economic policies. As will be explained in this paper, the main problem is that government bond yields no longer compensate for inflation levels in some countries. Pension savings are very much a national issue, rather than a Eurozone area one. Therefore national solutions need to be found, rather than pan-Eurozone ones. One option that will be explored is to compensate pension savers on their government bond holdings to a level equivalent of CPI levels plus 0.25%. The economic implications of this for both a central bank and a government will be set out in this paper. The Netherlands –as the country that in the Eurozone has the highest accumulated collective pension savings compared to its GDP- has been selected to show how this may work. As the current levels of interest rates are a consequence of the 2007-2008 financial crisis that started in the U.S., attention will first be paid to what was, and what was not, done to solve that crisis.
    Keywords: Pension crisis, U.S. financial crisis 2007-2008,returns on pension savings, QE by Fed in the U.S. and by ECB, alternative solutions to pension and mortgage crises
    JEL: D12 D14 E2 E21 E22 E24 E4 E42 E44 E5
    Date: 2019–09–07

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