nep-age New Economics Papers
on Economics of Ageing
Issue of 2020‒02‒10
eleven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Social Security Expansion and Neighborhood Cohesion: Evidence from Community-Living Older Adults in China By Bradley, Elizabeth; Chen, Xi; Tang, Gaojie
  2. PENELOPE: Luxembourg Tool for Pension Evaluation and Long-Term Projection Exercises By Luca Marchiori
  3. Social Security Is a Great Equalizer By Wenliang Hou; Geoffrey T. Sanzenbacher
  4. Target Date Funds and Portfolio Choice in 401(k) Plans By Olivia S. Mitchell; Stephen Utkus
  5. How Big Is the Government Subsidy for Medicare Part D? By Alicia H. Munnell; Gal Wettstein; Wenliang Hou
  6. Health Inequality among Chinese Older Adults: The Role of Childhood Circumstances By Yan, Binjian; Chen, Xi; Gill, Thomas M.
  7. Early Life Environments and Frailty in Old Age among Chinese Older Adults By Li, Xaxi; Xue, Qian-Li; Odden, Michelle C.; Chen, Xi; Wu, Chenkai
  8. Informal caregiving and quality of life among older adults: Prospective analyses from the Swedish Longitudinal Occupational Survey of Health (SLOSH) By Sacco, Lawrence B; König, Stefanie; Westerlund, Hugo; Platts, Loretta G.
  9. How Will Emerging Computers Affect Older Workers by 2040? By Anek Belbase; Andrew D. Eschtruth
  10. Gendered economic determinants of couple formation over 50 in France By C. BONNET; F. GODET; A. SOLAZ
  11. Long Term Care Insurance with State-Dependent Preferences By Philippe De Donder; Marie-Louise Leroux

  1. By: Bradley, Elizabeth; Chen, Xi; Tang, Gaojie
    Abstract: Grants and services provided by the government may crowd out informal arrangements, thus weakening informal caring relations and networks. In this paper, we examine the impact of social security expansion on neighborhood cohesion of elders using China’s New Rural Pension Scheme (NRPS), one of the largest existing pension program in the world. Since its launch in 2009, more than 400 million Chinese have enrolled in NRPS. We use two waves of China Health and Retirement Longitudinal Study (CHARLS) to examine the effect of pension receipt on two dimensions of neighborhood cohesion among older adults, i.e. participation in collective recreational activities (e.g., socializing and organizational activities) and altruistic activities (e.g., helping those in need in the community), and the frequencies of these activities. Employing an instrumental variable approach, our empirical strategy addresses the endogeneity of pension receipt via exploiting geographic variation in pension program roll-out. We find evidence that receiving pension only slightly reduces collective recreational activities while significantly crowding out altruistic activities in the communities.
    Keywords: neighborhood cohesion,pension,crowd out,diversity
    JEL: H55 I38 O22
    Date: 2020
  2. By: Luca Marchiori
    Abstract: This document presents the structure of PENELOPE, a macro-accounting tool aimed at examining the long-run sustainability of the Luxembourg pension system. PENELOPE complements othermodels studying the Luxembourg pension systemby proposing a disaggregated pension analysis in which demographic changes affect macroeconomic variables. The results of PENELOPE’s reference scenario are compared with those of other studies, while additional simulations focus on (i) the effects of different population projections and assumptions on cross-border worker inflows, (ii) the implications of the 2012 pension reform and of alternative proposals, as well as (iii) the evolution of the pension reserve under different scenarios.
    Keywords: Pension expenditure projections, demographic trends, labor inflows, pension reform
    JEL: H55 H68 J11
    Date: 2020–01
  3. By: Wenliang Hou; Geoffrey T. Sanzenbacher
    Abstract: As the U.S. population becomes more diverse, it will be increasingly important for policymakers addressing Social Security’s solvency to understand the extent to which various racial and ethnic groups rely on Social Security versus other sources of retirement wealth. Yet, to date, studies on retirement wealth have tended not to focus on race and ethnicity and have largely ignored the role of Social Security. This brief, based on a recent paper, uses data from the Health and Retirement Study (HRS) to document the retirement resources of white, black, and Hispanic households at various points in the wealth distribution for five cohorts of 51-56 year olds between 1992 and 2016. The discussion proceeds as follows. The first section explains the calculation of retirement wealth. The second section shows how Social Security reduces retirement wealth inequality by race and ethnicity for typical households in each cohort. The third section looks at the impact of Social Security on retirement wealth inequality across wealth quintiles in a single year. The fourth section shifts from wealth to income to examine replacement rates – the ratio of projected retirement income to pre-retirement earnings. The final section concludes that, as policymakers consider changes to bring Social Security into fiscal balance, the distributional impact of any benefit cuts with respect to minority groups may be worth considering.
    Date: 2020–01
  4. By: Olivia S. Mitchell; Stephen Utkus
    Abstract: Target date funds in corporate retirement plans grew from $5B in 2000 to $734B in 2018, partly because federal regulation sanctioned these as default investments in automatic enrollment plans. We show that adopters delegated pension investment decisions to fund managers selected by plan sponsors. Including these funds in retirement saving menus raised equity shares, boosted bond exposures, curtailed cash/company stock holdings, and reduced idiosyncratic risk. The adoption of low-cost target date funds may enhance retirement wealth by as much as 50 percent over a 30-year horizon.
    JEL: D12 D14 D91 J32
    Date: 2020–01
  5. By: Alicia H. Munnell; Gal Wettstein; Wenliang Hou
    Abstract: The Medicare Part D program, launched in 2006, extended outpatient prescription drug insurance to almost all Americans over age 65. This expansion of Medicare was a response to the rapid growth of drug costs and the resulting strain on patients’ budgets. Participants in Part D generally pay monthly premiums, face an annual deductible, and make copayments on drug purchases above the deductible. These payments typically are less than the value of the drugs received. Estimating the precise size of this subsidy for any individual depends on many factors. A simpler task is estimating the size of the average subsidy that retirees can expect to receive. This brief calculates the average lifetime Part D subsidy for a typical 65-year-old in 2019. Clarifying the scale of the Part D subsidy is important for individuals, researchers, and policymakers. For individuals, the size of the subsidy that the typical beneficiary can expect to receive from Part D may impact household planning for prescription drug costs in old age. For researchers, understanding the size of the subsidy will provide a basis for assessing the large reported effects of Part D on outcomes as diverse as mortality, mental health, and retirement age. For policymakers, knowing the subsidy amount will help them evaluate reform proposals (e.g., both the Affordable Care Act and the Bipartisan Budget Act of 2018 increased the generosity of the standard Part D benefit design, while current reform proposals would address rising drug costs). The discussion proceeds as follows. The first section describes how Part D works and defines the nature of the subsidy. The second section reports on what is known about the value of Part D from existing literature. The third section presents the methods used in this analysis to calculate the lifetime amount of the Part D subsidy. The fourth section presents estimates of the subsidy under low, intermediate, and high assumptions and discusses some implications. The final section concludes that Part D represents a substantial subsidy in dollar terms for an individual entering retirement.
    Date: 2019–12
  6. By: Yan, Binjian; Chen, Xi; Gill, Thomas M.
    Abstract: This paper examines the extent to which childhood circumstances contribute to health inequality in old age and how the contributions may vary across key dimensions of health. We link the China Health and Retirement Longitudinal Study (CHARLS) in 2013 and 2015 with its Life History Survey in 2014 to quantify health inequality due to childhood circumstances for which they have little control. We evaluate comprehensive dimensions of health ranging from cognitive health, mental health, physical health, self-rated health to mortality. Our analytic sample includes about 8,000 Chinese persons age above 60. Using the Shapley value decomposition approach, we first show that childhood circumstances may explain 1-23 percent of health inequality in old age across multiple health outcomes. Second, while both direct health-related circumstances and indirect health-related circumstances contribute significantly to health inequality, the latter tends to be more sizable. Our findings support the value of a life course approach in identifying the key determinants of health in old age.
    Keywords: Life course approach,Inequality of opportunity,Physical health,Cognitive ability,Mental health,Mortality
    JEL: I14 D63 I18 J13 J14
    Date: 2020
  7. By: Li, Xaxi; Xue, Qian-Li; Odden, Michelle C.; Chen, Xi; Wu, Chenkai
    Abstract: Exposures in childhood and adolescence may impact the development of diseases and symptoms in late life. However, evidence from low- and middle- income countries is scarce. In this study, we examined the association of early life risk factors with frailty among older adults using a large, nationally representative cohort of community-dwelling Chinese sample. 6,806 participants aged ≥60 years from the China Health and Retirement Longitudinal Study were included. We measured 13 risk factors in childhood or adolescence through self-reports, encompassing six dimensions (education, family economic status, nutritional status, domestic violence, neighborhood, and health). We used multinomial regression models to examine the association between risk factors and frailty and further calculated the absolute risk difference for the statistically significant factors. Results show that worse health condition in childhood and unfavorable childhood and adolescent socioeconomic status as measured by educational attainment and neighborhood quality may increase the risk of late-life frailty among Chinese older adults. Severe starvation in childhood was associated with higher risk of prefrailty. The risk differences of being frail were 5.7% lower for persons with a high school or above education, 1.5% lower for those whose fathers were literate, 4.8% lower for the highest neighborhood quality, and 2.9% higher for worse childhood health status compared to their counterparts.
    Keywords: Early Life Environments,Life Course Health,Physical Health,Frailty,Aging,China
    JEL: I10 I14 I18
    Date: 2020
  8. By: Sacco, Lawrence B (Stockholm University); König, Stefanie; Westerlund, Hugo; Platts, Loretta G. (Stockholm University)
    Abstract: Providing unpaid informal care to someone who is ill or disabled is a common experience in later life. While a supportive and potentially rewarding role, informal care can become a time and emotionally demanding activity, which may hinder older adults’ quality of life. In a context of rising demand for informal carers, we investigated how caregiving states and transitions are linked to overall levels and changes in quality of life, and how the relationship varies according to care intensity and burden. We used fixed effects and change analyses to examine six-wave panel data (2008–2018) from the Swedish Longitudinal Occupational Survey of Health (SLOSH, n=5076; ages 50–74). The CASP-19 scale is used to assess both positive and negative aspects of older adults’ quality of life. Caregiving was related with lower levels of quality of life in a graded manner, with those providing more weekly hours and reporting greater burden experiencing larger declines. Two-year transitions corresponding to starting, ceasing and continuing care provision were associated with lower levels of quality of life, compared to continuously not caregiving. Starting and ceasing caregiving were associated with negative and positive changes in quality of life score, respectively, suggesting that cessation of care leads to improvements despite persistent lower overall levels of quality of life. Measures to reduce care burden or time spent providing informal care are likely to improve the quality of life of older people.
    Date: 2020–02–03
  9. By: Anek Belbase; Andrew D. Eschtruth
    Abstract: Technological change is not new, particularly to the United States. Founded during the dawn of the Industrial Revolution, the country has been a leader in new technologies – from the cotton gin and the lightbulb to the personal computer and the internet. These advances have enabled people to lead lifestyles today that would have been unimaginable a century ago. But progress has not been painless for workers, as each wave of innovation has created laborsaving machines that have disrupted jobs. Each time, workers replaced by machines have faced difficult short-term transitions, but, through retraining and career changes, have eventually found jobs in rising industries. Today, as computer-powered machines perform tasks that would have seemed impossible only a decade ago, policymakers and workers alike are beginning to wonder – will workers continue to be able to adapt or is this time fundamentally different? The effect of new machines on older workers is of particular concern, because older workers make up a growing share of the workforce and increasingly need to work until their late 60s to attain a secure retirement. This brief wraps up a three-part series on the effects of laborsaving machines on older workers. The first brief reviewed the impact of machines over the past two centuries, and the second brief examined how the recent rise of computers has affected older workers so far. The current brief turns to the near future and explores how emerging computers, with expanding capabilities that rely on artificial intelligence, might affect the job prospects of older workers over the next two decades. The brief proceeds as follows. The first section describes the unique features of emerging computer technology. The second section explains how the new computers might affect demand for workers based on occupation and education. The third section examines whether older workers might be uniquely affected. The final section concludes that age is unlikely to determine how workers will be impacted. Instead, workers’ education levels – which are now roughly similar by age group – and social skills – which tend to get better with age – will play important roles in how they fare.
    Date: 2020–01
  10. By: C. BONNET (Ined); F. GODET (Insee); A. SOLAZ (Ined)
    Abstract: Couple formation over 50 has been largely unexplored until now. The lack of literature on this topic especially in France lies in the low number of events for this age group, even if it is increasing. From the Fideli 2016 two-year panel which combines comprehensive income and housing tax returns, we study the determinants of the union between women and men after 50 years (logistic regression), the type of union chosen: marriage, PACS or common-law union (multinomial regression), and the degree of homogamy within these new couples. The probability to form an union is higher for men than for women but sharply decreases with age for both. Previous marital status and income play different roles depending on the sex. Compared to never-married men, widowers are more likely to form a new couple. It is the opposite for women. Divorced men and women more often form a new union than others. While a high income increases the chances of repartnering for men, it decreases them for women. However, the effects of supply (less opportunity on the marriage market) cannot be disentangled from the effects of demand (less willingness and need to form a couple). For low income, forming a couple is one way to increase one's standard of living, at ages when it is difficult to increase the labor market participation. The type of union chosen also differs according to previous marital status and income. Over 50, the ex-spouses are more likely to marry, except for the widows who are the least likely to marry. Income plays positively on the fact of contracting an union for men. For women, the probability to contractualize theirs unions is highest at both ends of the income distribution. Over 50, men enter new unions with younger women and women who have similar levels of income. Women form new partnership with men who earn more than them.
    Keywords: Union formation ; elderly ; retired ; economic resources ; socioeconomic characteristics ; gender ; marital status ; repartnering ; mariage ; Pacs ; cohabitation
    JEL: J12 J14 J16
    Date: 2019
  11. By: Philippe De Donder; Marie-Louise Leroux
    Abstract: We study the demand for actuarially fair Long Term Care (LTC hereafter) insurance in a setting where autonomous agents only care for daily life consumption while dependent agents also care for LTC expenditures. We assume that dependency decreases the marginal utility of daily life consumption. We first obtain that some agents optimally choose not to insure themselves, while no agent wishes to buy complete insurance. We then show that the comparison of marginal utility of income (as opposed to consumption) across health states depends on (i) whether agents do buy LTC insurance at equilibrium or not, (ii) the comparison of the degree of risk aversion for consumption and for LTC expenditures, and (iii) the income level of agents. Our results then offer testable implications that can explain (i) why few people buy Long Term Care insurance and (ii) the discrepancies between various empirical works when measuring the extent of state-dependent preferences for LTC.
    Keywords: long term care insurance puzzle, actuarially fair insurance, risk aversion
    JEL: D11 I13
    Date: 2019

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