nep-age New Economics Papers
on Economics of Ageing
Issue of 2019‒10‒07
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Should I Care or Should I Work? The Impact of Working in Older Age on Caregiving By Carrino, L.;; Nafilyan, V.;; Avendaño Pabon, M.;
  2. Social Security Reform, Retirement and Occupational Behavior By Pedro Cavalcanti Ferreira; Rafael Parente
  3. Does the pension system’s income statement really matter? A proposal for an NDC scheme with disability and minimum pension benefits By Anne M. Garvey; Manuel Ventura-Marco; Carlos Vidal-Meliá
  4. Illiquid Wealth and the Timing of Retirement By Job Boerma; Jonathan Heathcote
  5. Endogenous Health Groups and Heterogeneous Dynamics of the Elderly By Dante Amengual; Jesus Bueren; Julio Crego
  6. Entrepreneurship, Inter-Generational Business Transmission and Aging By Sumudu Kankanamge; Alexandre Gaillard
  7. Demographic Effects on the Impact of Monetary Policy By John V. Leahy; Aditi Thapar
  8. Collectivised Pension Investment By John Armstrong; Cristin Buescu
  9. Policy Uncertainty and Information Flows: Evidence from Pension Reform Expectations By Emanuele Ciani; Adeline Delavande; Ben Etheridge; Marco Francesconi
  10. Older people health and access to healthcare. A retrospective look at inequality dynamics over the past decade By Dino Rizzi; Carlo Simionato; Francesca Zantomio
  11. Population Aging and Structural Transformation By Javier Cravino; Andrei A. Levchenko; Marco Rojas
  12. THe Baby Boomers' Retirement and Consumption Savings Puzzle By Abdou Ndiaye
  13. Demographic Aging, Industrial Policy, and Chinese Economic Growth By Michael Dotsey
  14. More Gray, More Volatile? Aging and (Optimal) Monetary Policy By Dániel Baksa; Zsuzsa Munkácsi
  15. Facility preferences for senior housing among lifestyle segments in Taiwan By Tzu-Chia Chang
  16. Demographics and the Evolution of Global Imbalances By Michael Sposi

  1. By: Carrino, L.;; Nafilyan, V.;; Avendaño Pabon, M.;
    Abstract: This paper examines the impact of an increase in labour supply on women’s informal caregiving, due to changes in pension rules. We exploit a unique reform that increased the female State-Pension-Age (SPA) in the UK for up to 6 years. Using an instrumental variable approach to account for the endogeneity of labour supply, we show that an increase in employment substantially reduces the intensity of informal care: working for 30 hours/week reduces care-intensity by 6.6 hours/week, and reduces the probability of providing intensive care (> 20 hours/week) by 4 percentage points. We show that these effects are concentrated among women working in physically and psychologically demanding jobs. Our results provide evidence that increasing women’s labour supply in older age by raising the statutory age of retirement may decrease the intensity of informal care, which raises concerns about the availability of informal care in ageing populations.
    Keywords: informal care; retirement; labour supply; pension reform;
    JEL: J14 J22 J26 H55
    Date: 2019–10
  2. By: Pedro Cavalcanti Ferreira (EPGE-FGV); Rafael Parente (Princeton University)
    Abstract: In most countries, the rules governing public and private pension systems are different, and so are hiring procedures and job contracts. The tenures of government employees are longer and their wages, in general, higher. This article studies, in a life-cycle economy with three sectors - formal, informal and public – and endogenous retirement, the macroeconomic and occupational impacts of social security reforms in an economy with multiple pension systems. In a model calibrated to Brazil, we simulate and assess the long-run impact of reforms being discussed and/or implemented in different economies. Among them, the unification of pension systems and the increase of minimum retirement age. These reforms are found to affect the decision to apply to a public job, savings during the life cycle and skill composition across sectors. They also lead to higher output, less informality and average welfare gains.
    Date: 2019
  3. By: Anne M. Garvey (Department of Economics and Management Sciences, University of Alcalá, Spain.); Manuel Ventura-Marco (Department of Financial Economics and Actuarial Science, University of Valencia, Spain.); Carlos Vidal-Meliá (Department of Financial Economics and Actuarial Science, University of Valencia (Spain) and research affiliation with the Instituto Complutense de Análisis Económico (ICAE), Complutense University of Madrid (Spain) and the Centre of Excellence in Population Ageing Research (CEPAR), UNSW (Australia).)
    Abstract: This paper develops a full accounting model for monitoring the solvency of a notional defined contribution (NDC) pension scheme with disability and minimum pension benefits. Using the annual report of the Swedish pension system as a benchmark (TSPS, 2018), we extend the “Swedish” actuarial balance developed by Pérez-Salamero et al. (2017) by adding an income statement which fully explains the reasons behind the changes in the system’s solvency by type of benefit. In line with the reference model, assets and liabilities are measured at present value at each reporting date, and changes in present value are reported in each period as income or expenses and are included on the income statement. Our proposed model is a step forward because it, also, incorporates the changes for disability pensions, the value of change in the discount rate and the explicit recognition of non-contributory rights (NCRs) into the Income statement. This accounting framework integrates both contributory and social aspects of public pensions and discloses the real cost of the disability contingency and the redistribution through minimum pensions. The paper contains a numerical example consisting of an income statement for a (fictional) already-functioning system to illustrate the main differences between the Swedish NDC scheme and our model. Mathematical details are presented in a comprehensive technical appendix.
    Keywords: Disability Insurance; Fair Presentation; Minimum Pensions; Notional Defined Contribution; Pay-as-you-go; Pension Accounting; Retirement; Sweden; True and Fair view.
    JEL: G22 H55 H83 J26 M48
    Date: 2019–07
  4. By: Job Boerma (University of Minnesota); Jonathan Heathcote (Federal Reserve Bank of Minneapolis)
    Abstract: Retirement saving is relatively illiquid. We explore whether this can account for the clustering of retirement decisions around the normal retirement age. We construct a series of retirement models featuring realistic financial market frictions and pension systems. We then estimate these models using Dutch micro data on income, wealth, and retirement choices. We use the estimated model to simulate various pension reforms and examine their impact on labor force participation. The model can account well for the observed increase in the average age of retirement in the Netherlands between 2000 and 2016. A general message from the analysis is that households’ willingness to retire early is very sensitive to the liquidity of their retirement savings.
    Date: 2019
  5. By: Dante Amengual (CEMFI); Jesus Bueren (European University Institute); Julio Crego (Tilburg University)
    Abstract: We propose a novel methodology to classify individuals into groups of health and characterize their transition across these groups as they age. We use MCMC techniques to estimate a panel Markov switching model that exploits information from both the crosssectional and time series dimensions. Using the Health and Retirement Study, we identify four clearly differentiated and persistent health groups, depending on individual’s physical and mental disabilities, with heterogeneous transitions across gender and education. Our classification outperforms existing measures of health used in the literature at explaining entry in nursing homes, home health care, out-of-pocket medical expenses and mortality.
    Date: 2019
  6. By: Sumudu Kankanamge (Toulouse School of Economics); Alexandre Gaillard (Toulouse School of Economics)
    Abstract: This paper introduces a quantitative stylized life-cycle model with entrepreneurship and endogenous business selling, buying and founding decisions. Using a new dataset on the small business sale market as well as the SSBF, the SBO and the PSID datasets, we document the importance of the buying, selling and founding margins for entrepreneurs and find large mismatches on the business sale market. The data also reveal a key role for age and life-cycle dynamics for entrepreneurial entry and exit decisions. Using the model, we find that the combination of (i) illiquid business assets, (ii) frictions on the business sale market and (iii) the life-cycle components of entrepreneurship are key to reproducing our empirical finding. Finally, we simulate a large demographic event akin to the baby-boomers generation reaching peak retirement age and evaluate the macroeconomic outcome of such a change.
    Date: 2019
  7. By: John V. Leahy; Aditi Thapar
    Abstract: We study whether the effects of monetary policy are dependent on the demographic structure of the population. We exploit cross-sectional variation in the response of US states to an identified monetary policy shock. We find that there are three distinct age groups. In response to an increase in interest rates, the responses of private employment and personal income are weaker the greater the share of population under 35 years of age, are stronger the greater the share between 40 and 65 years of age, and are relatively unaffected by the share older than 65 years. We find that all age groups become more responsive to monetary policy shocks when the proportion of middle aged increases. We provide evidence consistent with middle aged entrepreneurs starting and expanding businesses in response to an expansionary monetary shock.
    JEL: E32 E52 J11
    Date: 2019–09
  8. By: John Armstrong; Cristin Buescu
    Abstract: We study the optimal management of a collectivised pension fund, where all investors agree that the assets of deceased members are shared among the survivors. We find that for realistic parameters based on the UK pensions market, a collectivised fund achieves an approximately 20% better return than either an annuity or a personal investment fund. We introduce models of investor preferences over a stream of pension payments in the presence of mortality, incorporating a new concept of adequacy. We find that for risk-averse individuals, pension adequacy plays an important role in determining the optimal fund management strategy. A key issue in the design of collective funds is how to ensure the fund treats all investors fairly. This is a trivial problem in the case that all investors have identical preferences, wealth and mortality, but becomes challenging for heterogeneous funds. We give a strategy for the management of heterogeneous funds in complete markets and prove that it is asymptotically optimal in the absence of systematic longevity risk.
    Date: 2019–09
  9. By: Emanuele Ciani; Adeline Delavande; Ben Etheridge; Marco Francesconi
    Abstract: Subjective expectations about future policy play an important role in individuals’ welfare. We examine how workers’ expectations about pension reform vary with proximity to reforms, information cost, and aggregate information acquisition. We construct a new pan-European dataset of reform implementations and government announcements, and combine it with individual-level representative survey data on expectations about future reforms and country-level data on online search. We find: (1) Expectations are revised upward by about 10 percentage points in the year leading up to a reform, from a median of 50%, regardless of whether the reform is announced; (2) Aggregate online search increases after announcements, when the cost of information is lower; (3) Reform announcements and online information gathering are substitutes in the formation of expectations; (4) Expectations do not converge as a result of announcements or implementations; (5) The effect of information on expectations varies substantially across workers and systematically with observed characteristics that proxy cognitive ability and information value. These findings, interpreted using a model of rational inattention, reveal substantial informational rigidities, with welfare costs that run into trillions of Euros.
    Keywords: expectations, retirement, pension reform uncertainty, reform announcement, online search, rational inattention
    JEL: C80 D84 D91 J14
    Date: 2019
  10. By: Dino Rizzi (Department of Economics, University Of Venice Cà Foscari); Carlo Simionato (Consiglio Regionale del Veneto); Francesca Zantomio (Department of Economics, University Of Venice Cà Foscari)
    Abstract: The past decade of austerity measures has severely hit Public Healthcare provision in Italy, entailing significant reductions in per-capita expenditure, particularly in Regions put under ‘Healthcare Budget Recovery Plans’, mostly in the South of the country. Building on data on individuals aged 50 or older drawn from the Survey of Health, Ageing and Retirement in Europe, we compute time- and area-specific Concentration and Horizontal Inequity indexes, to assess the evolution of inequity in older people health and healthcare access (i.e. GP contacts and specialists’ visits) across Italian macro-areas since the Great Recession onset. Results show that in the North, while health has been improving on average, income-related inequality in health has increased; in the South, while on average health has not improved, the concentration of bad health among the income-poor has decreased. Sizeable inequity in access to specialists’ visits emerges throughout the country, and generally worsened since before the crisis onset. Evidence overall suggests that in the South, along the crisis, under worsened income conditions and Public Healthcare budget cuts, poorer older individuals might have substituted specialised care with increased family doctors’ visits.
    Keywords: Health, healthcare, inequity, concentration indexes, Great Recession
    JEL: I13 I14 I18
    Date: 2019
  11. By: Javier Cravino; Andrei A. Levchenko; Marco Rojas
    Abstract: We propose and quantify a novel mechanism behind the structural transformation process: older individuals devote a larger share of their expenditures to services, so the relative size of the service sector grows as the population ages. We document that for a large sample of countries, increases in population age are accompanied by the rise in the relative size of the service sector. We use household-level data from the US Consumer Expenditure Survey to show that the fraction of expenditures devoted to services increases with household age. We use a shift-share decomposition and a quantitative model to show that changes in the US population age distribution accounted for about a fifth of the increase in the share of services in consumption expenditures observed between 1982 and 2016. In our quantitative model, population aging plays a much larger role than changes in real income in accounting for the structural change observed in the US during this period.
    JEL: E2 O1 O4
    Date: 2019–09
  12. By: Abdou Ndiaye (Federal Reserve Bank of Chicago)
    Abstract: As America's largest generation, the baby boom generation, approaches re- tirement in increasing numbers, we should expect that the consumption and savings decisions of this group would have a signicant social and economic eect, to some degree directly through changing demand for goods, but more interestingly in determining the necessity or plausibility Social Security and Medicare reform. According to standard theoretical macroeconomic models, individuals maximize their welfare by maintaining relatively constant consump- tion throughout their lives, saving when income is high and borrowing or using savings when income is low, as in retirement or during unemployment. The question addressed is thus whether boomers adhere to this predicted consump- tion trend, and whether they behave as predicted when faced with a shock like the Great Recession or face a health shock. This paper will use panel data on consumption, wealth, and other variables from PSID between 2001 and 2015 in the United States. It then uses the Consumption Expenditures Survey as a robustness check for results. The paper will then explore some policy implica- tions.
    Date: 2019
  13. By: Michael Dotsey (Federal Reserve Bank of Philadelphia)
    Abstract: We examine the role of demographics and changing industrial policies in accounting for the rapid rise in household savings and in per capita output growth in China since the mid 1970s. The demographic changes come from reductions in the fertility rate and increases in the life expectancy, while the industrial policies take many forms. These policies cause important structural changes; first benefiting private labor-intensive firms by incentivizing them to increase their share of Chinese output, and later on benefiting capital-intensive firms resulting in an increase the share of capital devoted to heavy industries. We conduct our analysis in a general equilibrium economy that also features endogenous human capital investment. We calibrate the model to match key economic variables of the Chinese economy and show that demographic changes and industrial policies both contributed to increases in savings and output growth but with differing intensities and at different horizons. We further demonstrate the importance of endogenous human capital investment in accounting for the economic growth in China.
    Date: 2019
  14. By: Dániel Baksa (International Monetary Fund & Central European University); Zsuzsa Munkácsi (International Monetary Fund)
    Abstract: The empirical and theoretical evidence on the inflation impact of population aging is mixed, and there is no evidence regarding the volatility of inflation. Based on advanced economies’ data and a DSGE-OLG model - a multi-period general equilibrium framework with overlapping generations, - we find that aging leads to downward pressure on inflation and higher inflation volatility. Our paper is also the first to discuss, using this framework, how aging affects the short-term cyclical behavior of the economy and the transmission channels of monetary policy. Further, we are also the first to examine the interplay between aging and optimal central bank policies. As aging redistributes wealth among generations, generations behave differently, and the labor force becomes more scarce with aging, our model suggests that aging makes monetary policy less effective, and aggregate demand less elastic to changes in the interest rate. Moreover, in more gray societies central banks should react more strongly to nominal variables, and in a very old society the nominal GDP targeting rule might become the most effective monetary policy rule to compensate for higher inflation volatility.
    Keywords: aging, monetary policy transmission, optimal monetary policy, inflation targeting
    JEL: E31 E52 J11
    Date: 2019–09–27
  15. By: Tzu-Chia Chang
    Abstract: Taiwan’s governments used to motivate supplies to fit the expected increasing demands for senior housing, since the elders’ share of population was 7% in 1993. However, the vacant rate was still high in budget senior housing whereas the demand for high-price dwelling has been fulfilled by private sectors during these two decades. It indicates that market segmentation is necessary, based on the heterogeneity among elders. In this study, lifestyle characteristics are introduced as a basis for segmentation in senior housing market. And I intend to figure out product combination for targeted elderly segment as well. Factor analysis and cluster analysis were employed to illustrate lifestyle and demographic characteristics of elders in each segment. And ANOVA tests were performed to reveal the differential preferences for housing facilities and services among elderly segments. The results show significant diversified preferences among elders, and suggest closer consideration of elders’ lifestyles when creating and promoting senior housing services.
    Keywords: facilities and services; lifestyle; Market Segmentation; Senior Housing
    JEL: R3
    Date: 2019–01–01
  16. By: Michael Sposi (Southern Methodist University)
    Abstract: Differential changes in the age distribution across countries has sharp implications for the evolution of global imbalances. I develop a dynamic, multicountry, Ricardian trade model with endogenous labor supply to measure the effect of demographics on trade imbalances across 28 countries from 1970-2014. Changes in the age distribution impact a country's net exports directly through the demand for net saving and indirectly through relative labor supply. Counterfactually removing demographic-induced changes to saving demand imply substantially lower net exports in emerging economies that experience relatively fast increases in working age shares, and higher net exports in advanced economies that experienced flat, and even declining, working age shares. On average, one percentage point increase in a country's working age share relative to the world increases the ratio of net exports to GDP by 14 percentage points. This finding helps reconcile the allocation puzzle.
    Date: 2019

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