nep-age New Economics Papers
on Economics of Ageing
Issue of 2019‒12‒16
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Women's experience of child death over the life course: A global demographic perspective By Alburez-Gutierrez, Diego; Kolk, Martin; Zagheni, Emilio
  2. Extending the retirement age for preserving the costitutive pension system mission By Mauro Visaggio
  3. How Best to Annuitize Defined Contribution Assets? By Alicia H. Munnell; Gal Wettstein; Wenliang Hou
  4. The Old-Age Security Motive for Fertility: Evidence from the Extension of Social Pensions in Namibia By Pauline Rossi; Mathilde Godard
  5. The impact of reducing the pension generosity on inequality and schooling By Sanchez-Romero, Miguel; Fürnkranz-Prskawetz, Alexia
  6. The Mental Health Effects of Retirement By Picchio, Matteo; van Ours, Jan C.
  7. How Do Older Workers Use Nontraditional Jobs? By Alicia H. Munnell; Geoffrey T. Sanzenbacher; Abigail N. Walters
  8. Did Soviet Elderly Employment Respond to Financial Incentives? Evidence from Pension Reforms By Malkova, Olga
  9. Why Are 401(k)/IRA Balances Substantially Below Potential? By Andrew D. Biggs; Alicia H. Munnell; Anqi Chen
  10. The interaction between labour force participation of older men and their wife: lessons from France By Idriss Fontaine
  11. Accounting for Social Security Claiming Behavior By Svetlana Pashchenko; Ponpoje Porapakkarm
  12. Theory and applications of backward probabilities and prevalences in cross-longitudinal surveys By Nicolas Brouard
  13. Fast Locations and Slowing Labor Mobility By Coate, Patrick; Mangum, Kyle
  14. Will More Workers Have Nontraditional Jobs as Globalization and Automation Spread? By Matthew S. Rutledge; Gal Wettstein; Sara Ellen King

  1. By: Alburez-Gutierrez, Diego; Kolk, Martin; Zagheni, Emilio
    Abstract: Recent population change has seen increases in life expectancy, reductions in family size, and postponement of fertility to older ages. We analyze the effect of these dynamics on the experience of child death over the life course for the 1950-1999 annual birth cohorts of women around the world. The paper draws on age-specific fertility and mortality rates from the UN World Population Prospects 2019 (estimates and projections) to assess trends in the frequency and timing of child death using formal demographic methods. We discuss the variation in woman's exposure to offspring mortality according to the demographic regimes prevailing in different world regions. Our analyses predict a global reduction in the overall frequency of child death over a woman's life course. We expect the largest improvements in regions of the Global South where child death is still common for women. In spite of persisting regional inequalities, we show evidence of a global convergence towards a future where the death of a child will become ever more infrequent for women. We anticipate that global population aging will be accompanied by an aging of generational relationships where life events such as the death of a child are experienced at older ages. Given these results, it seems likely that `child death' will increasingly come to mean the death of an adult child for younger generations of women.
    Date: 2019–11–16
  2. By: Mauro Visaggio (Dipartimento di Economia, Università di Perugia)
    Abstract: This paper examines some issues relating to the establishment of defined contribution pension system. First, it shows that the defined benefit pension system could successfully counteract the financial un-sustainability of the pension system, such as defined contribution pension system. Second, it notes that defined contribution pension system re-quires the pension amount to be endogenous and, as a consequence, the abandonment of the constitutive aim of the pension system e.g., consumption smoothing. Third, it argues that the extending of the retirement age may counteract the aging of the population and achieve financial sustainability, along with the individual well-being.
    Date: 2019–11
  3. By: Alicia H. Munnell; Gal Wettstein; Wenliang Hou
    Abstract: Unlike defined benefit pensions that provide participants with steady benefits for as long as they live, 401(k) plans and Individual Retirement Accounts (IRAs) provide little guidance on how to turn accumulated assets into income. As a result, retirees have to decide how much to withdraw each year and face the risk of either spending too quickly and outliving their resources or spending too conservatively and consuming too little. Surveys of individuals’ plans and several recent studies suggest that people will not draw down their accumulations for fear that they will exhaust their money and be unable to cover end-of-life health care costs. They also must consider how to invest their savings after retirement. These are difficult decisions. Better strategies are possible that will ensure a higher level of lifetime income, reduce the likelihood that people will outlive their resources, and alleviate some of the anxiety associated with post-retirement investing. Workers could use a portion of their 401(k) and IRA assets to purchase an immediate annuity that pays a fixed amount throughout their lives, typically starting at age 65. Or they could purchase an advanced life deferred annuity (ALDA) that requires a smaller share of accumulated assets and begins payments at a later age like 85. Alternatively, they could use their assets to delay claiming Social Security – essentially purchasing an inflation-indexed annuity. Right now, none of these three options is commonly used. Very few workers choose to purchase immediate or deferred annuities (the first two options). And few retirees appear to be deferring claiming in order to receive the maximum annuity income from Social Security – most people simply retire earlier and claim immediately. Increasing annuitization in a meaningful way would require embedding annuities in 401(k) plans, with annuitization as the default. Recent proposed federal legislation, such as the SECURE Act (Setting Every Community Up for Retirement Enhancement), encourages plan sponsors to offer annuities in their plans by establishing a fiduciary safe harbor when specific statutory conditions are followed in selecting an insurance company. This legislation does not address, however, the question of defaults or the possibility of using 401(k) assets to purchase additional Social Security benefits. Moving forward on these fronts would require some consensus about the appropriate share of 401(k) assets to be annuitized and the best method for annuitizing them. To address these issues, this paper compares the level of lifetime utility generated by alternative annuitization approaches – immediate annuities, deferred annuities, and additional Social Security through delayed claiming. The analysis also tests different assumptions for the share of initial wealth that participants use to purchase these products.
    Date: 2019–10
  4. By: Pauline Rossi (UvA - University of Amsterdam [Amsterdam], Tinbergen Institute - Tinbergen Institute, CEPR - Center for Economic Policy Research - CEPR); Mathilde Godard (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The old-age security motive for fertility postulates that people's needs for old-age support raise the demand for children. We test this widespread idea using the extension of social pensions in Namibia during the nineties. The reform eliminated inequalities in pension coverage and benefit across regions and ethnic groups. Combining differences in pre-reform pensions and differences in exposure across cohorts, we show that pensions substantially reduce fertility, especially in late reproductive life. This article provides the first quasi-experimental quantification of the old-age security motive. The results suggest that improving social protection for the elderly could go a long way in fostering fertility decline in Sub-Saharan Africa.
    Keywords: Fertility,Old-age pensions,Social security,Africa,Difference-in-differences
    Date: 2019
  5. By: Sanchez-Romero, Miguel; Fürnkranz-Prskawetz, Alexia
    Abstract: In this paper we investigate the impact of a reduction in the pension replacement rate on the schooling choice and on inequality. We develop an overlapping generations model in which individuals differ by their life expectancy and in the cost of attending schooling. Individuals optimally choose their consumption path and their educational attainment. Within our framework we first show how many progressive pension systems are ex ante regressive due to the difference in life expectancy across skill groups and, second, we derive the level of progressivity that restores an equal treatment of the pension system across skill groups.
    Keywords: Human capital,Longevity,Inequality,Life cycle,Social security,Pension,Progressivity
    JEL: E24 J10 J18 H55
    Date: 2019
  6. By: Picchio, Matteo (Università Politecnica delle Marche, Ancona); van Ours, Jan C. (Erasmus University Rotterdam)
    Abstract: We study the retirement effects on mental health using a fuzzy regression discontinuity design based on the eligibility age to the state pension in the Netherlands. We find that the mental effects are heterogeneous by gender and marital status. Retirement of partnered men positively affects mental health of both themselves and their partners. Single men retiring experience a drop in mental health. Female retirement has hardly any effect on their own mental health or the mental health of their partners. Part of the effects seem to be driven by loneliness after retirement.
    Keywords: retirement, health, well-being, happiness, regression discontinuity design
    JEL: H55 J14 J26
    Date: 2019–11
  7. By: Alicia H. Munnell; Geoffrey T. Sanzenbacher; Abigail N. Walters
    Abstract: Working consistently through oneÕs fifties and early sixties is key to attaining retirement security. However, workers also need access to retirement plans Ð so they can continue to accumulate resources Ð and health insurance Ð so they can avoid withdrawing assets in the event of a health shock. Workers without access to these benefits will likely struggle as they approach retirement, both financially and perhaps emotionally, as they deal with the stress of being unprepared. Yet, despite the fact that a large literature focuses on nontraditional jobs that often lack these benefits, it is unclear how older workers use these jobs and what the consequences are. If some older workers use nontraditional work for much of their late careers, then they likely will end up worse off. If, instead, older workers use nontraditional jobs only temporarily, then it is unlikely that their situation will substantially change. This paper uses the Health and Retirement Study to identify nontraditional jobs and relies on sequence analysis to explore how workers ages 50-62 use them. The results suggest that the majority of nontraditional jobs are used by workers consistently, and that fewer workers use these jobs briefly or as a bridge to retirement. In the end, workers consistently in nontraditional jobs end up with less retirement income than other workers and are more likely to be depressed, even controlling for their financial situation and depression prior to age 50. Given this situation, policymakers may want to consider ways to expand benefits to workers in these jobs to improve their well-being in retirement.
    Date: 2019–10
  8. By: Malkova, Olga (University of Kentucky)
    Abstract: This study answers the open question of whether workers respond to financial incentives in a command economy. To do this, I evaluate pension reforms in Soviet Russia in 1964 and 1969 that allowed pensioners to receive a greater share of their pensions if they worked, resulting in a progressive elimination of benefit reduction rates. Variation in group eligibility and variation in benefit reduction rates in eastern and western regions allow for the use of several difference-in-differences frameworks. I collect and digitize novel data from the Soviet archives on pensioner employment, constructing the first database of the Soviet old-age labor market. I find that Soviet pensioners are responsive to financial incentives. By 1969, after the benefit reduction rate fell from an average of 47.8 to 24.1 percent, pensioner employment rates rose by 5.7 percentage points, representing a 47 percent increase. Finally, I provide illustrative estimates of the employment elasticity with respect to the average net-of-tax rate that range from 0.6 to 1.4.
    Keywords: pension, retirement, employment, Soviet economy
    JEL: J18 J26 H55
    Date: 2019–11
  9. By: Andrew D. Biggs; Alicia H. Munnell; Anqi Chen
    Abstract: For most workers, 401(k)/IRA assets represent the main source of retirement savings outside of Social Security. These accounts can generate significant wealth if workers contribute consistently from a young age, keep their money in their accounts, and minimize their investment fees. However, most workers have 401(k)/IRA balances at retirement that are substantially below their potential. For example, a 25-year-old median earner in 1981 who contributed regularly would have accumulated about $364,000 by age 60, but the typical 60-year-old in 2016 had less than $100,000. The discrepancy is somewhat less if those under 30 and those with defined benefit plans are excluded from the analysis, but still significant. This study uses the Survey of Income and Program Participation, linked with administrative tax records, to explore the reasons for this gap between potential and actual balances and their relative importance. The potential reasons include: the immaturity of the 401(k) system, lack of universal coverage, leakages, and fees.
    Date: 2019–11
  10. By: Idriss Fontaine (CEMOI - Centre d'Économie et de Management de l'Océan Indien - UR - Université de La Réunion)
    Abstract: Since the mid-1990s, the labor force participation of older men and women increased substantially in France. In this paper, we investigate the causal impact of having a participating wife on the labor market behavior of the elderly husband. Working with data from the French Labour Force Survey and using the cohort-specific participation rate of women at age 40 as an instrument for their current participation, we find that the magnitude of the causal relationship is strong. The likelihood of husbands' participation increases of about 28 points when their wives are currently active on the labor market. Such findings support the view that some complementarities in leisure exist so that French married men attribute a higher value to leisure when it is shared with their wife. It also suggests that policy makers should take into account both direct and indirect effects when they implement a change in the economic environment of elderly.
    Keywords: Labor force participation,elderly,cohort effects,France
    Date: 2019–10–25
  11. By: Svetlana Pashchenko; Ponpoje Porapakkarm
    Abstract: Why do most individuals claim Social Security benefits before the full retirement age? Claiming benefits early results in a substantial reduction in pension income, yet many people claim as early as possible (age 62) or soon thereafter. We argue that by answering this question, we can make two additional contributions to the literature. First, early claiming is equivalent to low demand for Social Security annuity, thus it offers a unique context for studying the well-known annuity puzzle. Since participation in Social Security is nearly universal, the low demand for this annuity cannot be explained away by market failures. Second, we show that claiming decisions are closely linked to the subjective rate of time preferences and thus can provide a new angle for the identification of this parameter. We provide a quantitative analysis of claiming decisions using a rich structural life-cycle model that matches many important features of the data. We find that the claiming puzzle can be attributed to a combination of three factors: (i) the discrepancy between individuals' subjective valuation of Social Security annuity and its implicit price, (ii) strong bequest motives, (iii) pre-annuitized wealth. We show that if individuals were rewarded for delaying claiming not with additional annuity income but with equivalent (in present value terms) lump-sum payments, the fraction of early claimers would be significantly reduced.
    Keywords: social security, retirement, annuities, consumption and saving, life-cycle model
    JEL: D91 G11 G22
    Date: 2019–12
  12. By: Nicolas Brouard
    Abstract: In this chapter we introduce the backward probability and the backward prevalence. Both measures are of minor interest compared to forward probability and forward prevalence; however, they can bring a better understanding of the past population dynamic. More- over, we show that through the calculation of backward probabilities, one can reconstruct prevalences at any age for older generations. Here, the demographic interest lies in the comparison of the three prevalences: cross-sectional, forward, and backward. In order to accomplish our task, we first review theories of Markov chains with (i) an age- independent transition matrix and, (ii) when transitions vary with age. The second theory leads to an interesting property called “weak ergodicity” that allows us to predict future prevalences for younger generations. It is important to mention here that backward probability was rapidly defined in 1980 (Brouard, 1980) using longitudinal information of French women’s participation in economic activity between 1977 and 1978, and most results presented in the publication of 1980 are reviewed for this study. This chapter also shows that in a stationary multistate population, cross-sectional, forward, and backward prevalences are identical at each age. If they are not, as in the case of the economic activity of French women which changed after the 1968s revolution (women’s liberation, contraception, and abortion laws), our approach enables a clearer, faster, and synthetic analysis of these changes without the need to wait 20 or 30 years until these women meave the labor market. Then, we review demographic tools, now widely used in mortality analysis that compare “cross-sectional prevalence of survival” and period mortality table. We extend them to multistates methods, particularly to methods developed in the mid-1990s to estimate disability-free life expectancies.
    Date: 2019
  13. By: Coate, Patrick (National Council on Compensation Insurance); Mangum, Kyle (Federal Reserve Bank of Philadelphia)
    Abstract: Declining internal migration in the United States is driven by increasing home attach-ment in locations with initially high rates of population turnover. These “fast” locations were the population growth destinations of the 20th century, where home attachments were low, but have increased as regional population growth has converged. Using a novel measure of attachment, this paper estimates a structural model of migration that distinguishes moving frictions from home utility. Simulations quantify candidate explanations of the decline. Rising home attachment accounts for most of the decline not attributable to population aging, and its effect is consistent with the observed spatial pattern.
    Keywords: declining internal migration; labor mobility; home attachment; rootedness; local ties; conditional choice probability estimation
    JEL: C50 J61 R11 R23
    Date: 2019–12–02
  14. By: Matthew S. Rutledge; Gal Wettstein; Sara Ellen King
    Abstract: Recent research has called attention to alternative employment arrangements that often leave workers without retirement and health benefits and with income instability. At the same time, workers are facing increasing competition from automation and globalization. This competition is of special concern for older workers, who increasingly need longer careers to secure an adequate retirement and jobs with benefits to enable saving and access to affordable health care. The question is: are these “nontraditional” jobs more prevalent in areas more exposed to such competitive pressures and are older workers more likely to hold them? The study uses the 1996-2008 panels of the Survey of Income and Program Participation to track the share of workers in nontraditional work arrangements – defined based on characteristics of the job including retirement plan coverage, health insurance coverage, and hour or wage instability. It then estimates whether workers are more likely to be in nontraditional arrangements, or transition from traditional to nontraditional work, in areas with greater exposure to trade and automation. The findings suggest that globalization does not have a major effect, but automation does; a 1-standard deviation increase in the use of industrial robots is associated with an 11-percent increase in nontraditional employment. This relationship is even stronger for older workers: a 1-standard-deviation increase in automation is associated with a 17-percent increase in nontraditional work at ages 50-62. As automation continues to increase, jobs that offer retirement savings, health insurance, and stable income may continue to decline, and the impact is likely to be particularly felt by older workers who may need these benefits the most.
    Date: 2019–07
  15. By: Giulia Bettin (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche); Isabella Giorgetti (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche); Stefano Staffolani (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche)
    Abstract: We analyse how the availability of immigrant workers in the elderly care sector affects the labour force participation of Italian females aged between 45 and 65. We estimate a selection bias correction model and exploit an IV strategy based on the role of migration networks in determining the geographical distribution of immigrants over time. Our main findings show that the local availability of foreign–born caregivers has a positive impact on the number of hours worked by Italian women, especially those with high–educational levels and living in the Northern regions. The effect on participation rates are instead positive and significant only for low–educated women and for women living in Central Italy.
    Keywords: Keywords: immigration, female labour supply, elderly care services
    JEL: F22 J22 J61 C26
    Date: 2019–12

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