nep-age New Economics Papers
on Economics of Ageing
Issue of 2020‒06‒29
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Social Security, Labor Supply and Health of Older Workers: Quasi-Experimental Evidence from a Large Reform By Saporta-Eksten, Itay; Shurtz, Ity; Weisburd, Sarit
  2. Short-Run Health Consequences of Retirement and Pension Benefits: Evidence from China By Plamen Nikolov; Alan Adelman
  3. The Limited Power of Socioeconomic Status to Predict Longevity: Implications for Pension Policy By Arno Baurin
  4. The Murder-Suicide of the Rentier: Population Aging and the Risk Premium By Kopecky, Joseph V.; Taylor, Alan M.
  5. Novel Utility-based Life Cycle Models to Optimise Income in Retirement in the Presence of Heterogeneous Preferences By Bonsoo Koo; Athanasios A. Pantelous; Yunxiao Wang
  6. Cost Saving and the Freezing of Corporate Pension Plans By Joshua D. Rauh; Irina Stefanescu; Stephen P. Zeldes
  7. Pareto-improving transition to fully funded pensions under myopia By Andersen, Torben M; Bhattacharya, Joydeep; Gestsson, Marias H
  8. Do Private Household Transfers to the Elderly Respond to Public Pension Benefits? Evidence from Rural China By Plamen Nikolov; Alan Adelman
  9. The Adverse and Beneficial effects of Front-Loaded Pension Contributions By Westerhout, Ed
  10. The optimal investment strategy of a DC pension plan under deposit loan spread and the O-U process By Xiao Xu
  11. Automation, Growth, an Factor Shares in the Era of Population Aging By Andreas Irmen
  12. Disparities in Vulnerability to Severe Complications from COVID-19 in the United States By Emily E. Wiemers; Scott Abrahams; Marwa AlFakhri; V. Joseph Hotz; Robert F. Schoeni; Judith A. Seltzer
  13. The Impact of Automatic Enrolment on the Mental Health Gap in Pension Participation: Evidence from the UK By Karen Arulsamy; Liam Delaney
  14. Taxation and policyholder behavior: the case of guaranteed minimum accumulation benefits By Jennifer Alonso Garcia; Michael Sherris; Samuel Thirurajah; Jonathan Ziveyi
  15. Spending from regulated retirement drawdowns: The role of implied endorsement By Jennifer Alonso Garcia; Hazel Bateman; Johan Bonekamp; Ralph Stevens

  1. By: Saporta-Eksten, Itay (Tel Aviv University); Shurtz, Ity (Ben Gurion University); Weisburd, Sarit (Tel Aviv University)
    Abstract: We study the effects of public pension systems on the retirement timing of older workers and, in turn, the health consequences of delaying retirement by those workers. Causal inference relies on a social security reform in Israel that shifted payments from husbands to their (non-working) wives, thereby substantially reducing the implied tax on the husband's employment while keeping overall household wealth constant. Using administrative social security data, we estimate extensive-margin labor supply elasticities w.r.t. the average net-of-tax rate of about 0.43 for men over 65. Using the reform to instrument for employment, we find that working an additional full year at old age decreases longevity. This mortality effect occurs after age 75 and is driven by workers holding blue-collar jobs. Finally, we evaluate the effect of the reform on earnings. The results imply a small value for an additional year of life, suggesting that workers underestimate the health cost of employment at older ages.
    Keywords: labor supply, social security, tax reform, health, mortality
    JEL: H55 J14 J17 J22 J26
    Date: 2020–05
  2. By: Plamen Nikolov; Alan Adelman
    Abstract: This paper examines the impact of the New Rural Pension Scheme (NRPS) in China. Exploiting the staggered implementation of an NRPS policy expansion that began in 2009, we use a difference-in-difference approach to study the effects of the introduction of pension benefits on the health status, health behaviors, and healthcare utilization of rural Chinese adults age 60 and above. The results point to three main conclusions. First, in addition to improvements in self-reported health, older adults with access to the pension program experienced significant improvements in several important measures of health, including mobility, self-care, usual activities, and vision. Second, regarding the functional domains of mobility and self-care, we found that the females in the study group led in improvements over their male counterparts. Third, in our search for the mechanisms that drive positive retirement program results, we find evidence that changes in individual health behaviors, such as a reduction in drinking and smoking, and improved sleep habits, play an important role. Our findings point to the potential benefits of retirement programs resulting from social spillover effects. In addition, these programs may lessen the morbidity burden among the retired population.
    Date: 2020–06
  3. By: Arno Baurin (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Differences of life expectancy across socioeconomic status are well-documented and many economists argue that they should be taken into account when designing pension systems. This paper analyses the relevance of using socioeconomic characteristics to differentiate retirement age. Using US mortality rate assembled by Chetty et al. (2016), we simulate the longevity distribution both across and within socioeconomic status. Then, we analyze the power of socioeconomic status to predict individuals' longevity. Results suggest that socioeconomic status has relatively limited predictive power, due to the huge within status longevity variance.
    Keywords: Pension policy, Pension progressivity, Longevity, Tagging
    JEL: D63 H55 J14 J18
    Date: 2020–06–10
  4. By: Kopecky, Joseph V.; Taylor, Alan M.
    Abstract: Population aging has been linked to global declines in interest rates. A similar trend shows that equity risk premia are on the rise. An existing literature can explain part of the decline in the trend in safe rates using demographics, but has no mechanism to speak to trends in relative asset prices. We calibrate a heterogeneous agent life-cycle model with equity markets, showing that this demographic channel can simultaneously account for both the majority of a downward trend in the risk free rate, while also increasing premium attached to risky assets. This is because the life cycle savings dynamics that have been well documented exert less pressure on risky assets as older households shift away from risk. Under reasonable calibrations we find declines in the safe rate that are considerably larger than most existing estimates between the years 1990 and 2017. We are also able to account for most of the rise in the equity risk premium. Projecting forward to 2050 we show that persistent demographic forces will continue push the risk free rate further into negative territory, while the equity risk premium remains elevated.
    Keywords: demographics; Life-Cycle Model; OLG model; Rates of return; risky assets; safe assets; secular stagnation
    JEL: E21 E43 G11 J11
    Date: 2020–04
  5. By: Bonsoo Koo; Athanasios A. Pantelous; Yunxiao Wang
    Abstract: The global shift towards defined-contribution pension schemes has been accompanied by asymmetric risks and new responsibilities for households to plan and fund effectively their own retirement over the years. In this study, expressing and combining preferences for consumption, investment, bequest, public pension entitlement and the choice of reverse mortgage products, we develop several utilitybased life cycle models to facilitate the complex decision-making process that retired households are required to follow to optimise their retirement income. This optimal policy is given in the form of either an analytical or a numerical solution using stochastic dynamic programming. The timing of this paper coincides with the launch of a reverse mortgage style loan, offered by the Australian federal government and allowing retired households to receive an income stream by taking out a loan against the equity in their home. Calibration is performed using real Australian household data.
    Keywords: risk management, stochastic optimal control, life cycle models, retirement income, reverse mortgage, defined contribution
    Date: 2020
  6. By: Joshua D. Rauh; Irina Stefanescu; Stephen P. Zeldes
    Abstract: Companies that freeze defined benefit pension plans save the equivalent of 13.5 percent of the long-horizon payroll of current employees. Furthermore, firms with higher prospective accruals are more likely to freeze their plans. Cost savings would not be possible in a benchmark model in which i) all workers receive compensation equal to their marginal product and ii) workers value equally all identical-cost forms of pension benefits. We find evidence consistent both with firms’ reneging on implicit contracts to provide workers with high pension accruals later in their careers and with shifts in employee valuation of different forms of retirement benefits.
    JEL: G14 G23 G32 J31 J32 J33 J38
    Date: 2020–05
  7. By: Andersen, Torben M; Bhattacharya, Joydeep; Gestsson, Marias H
    Abstract: Under dynamic efficiency, a pay-as-you-go (PAYG) pension scheme helps the current generation of retirees but hurts future generations because they are forced to save via a return-dominated scheme. Abandoning it is deemed welfare-improving but typically not for all generations. But what if agents are present-biased (hence, undersave for retirement) and the "paternalistically motivated forced savings" component of a PAYG scheme motivated its existence in the first place? This paper shows it is possible to transition from such a PAYG scheme on to a higher return, mandated fully-funded scheme; yet, no generation is hurt in the process. The results inform the debate on policy design of pension systems as more and more policy makers push for the transition to take place but are forced to recognize that current retirees may get hurt along the way.
    Keywords: mandatory pensions; Pareto criterion pension crowding out; Present-Biased Preferences; transition
    JEL: D3 D91 E6 H55
    Date: 2020–04
  8. By: Plamen Nikolov; Alan Adelman
    Abstract: Exploiting a unique policy intervention in China, we examine using a difference-in-difference-in-differences (DDD) approach how a new pension program impacts inter vivos transfers. We show that pension benefits lower the propensity of receiving transfers from adult children in the context of a large middle-income country and we also estimate a small crowd-out effect. Taken together, these estimates fit the pattern of previous research in high-income countries, although our estimates of the crowd-out effect are significantly smaller than previous studies in both high-income and middle-income countries.
    Date: 2020–06
  9. By: Westerhout, Ed (Tilburg University, Center For Economic Research)
    Keywords: pensions; Front-loaded pension contributions; Labour supply; retirment; Distortionary taxes
    JEL: H21 H31 J22
    Date: 2020
  10. By: Xiao Xu
    Abstract: This paper is devoted to invest an optimal investment strategy for a defined-contribution (DC) pension plan under the Ornstein-Uhlenbeck (O-U) process and the loan. By considering risk-free asset, a risky asset driven by O-U process and a loan in the financial market, we firstly set up the dynamic equation and the asset market model which are instrumental in achieving the expected utility of ultimate wealth at retirement. Secondly, the corresponding Hamilton-Jacobi-Bellman(HJB) equation is derived by means of dynamic programming principle. The explicit expression for the optimal investment strategy is obtained by Legendre transform method. Finally, different parameters are selected to simulate the explicit solution and the financial interpretation of the optimal investment strategy is given.
    Date: 2020–05
  11. By: Andreas Irmen (Department of Economics and Management, Université du Luxembourg)
    Abstract: How does population aging affect economic growth and factor shares in times of increasingly automatable production processes? The present paper addresses this question in a new macroeconomic model of automation where competitive firms perform tasks to produce output. Tasks require labor and machines as inputs. New machines embody superior technological knowledge and substitute for labor in the performance of tasks. The incentive to automate is stronger if wages are higher. Automation is shown to boost the aggregate demand for labor if and only if the incentives to automate are strong enough and to reduce the labor share. These predictions obtain even though automation is labor-augmenting in the reduced-form production function. Population aging due to a higher longevity or a decline in fertility may strengthen or weaken the incentives to automate. Irrespective of its source, population aging is predicted to increase the growth rate of per-capita GDP in the short and in the long run. The short-run effect of higher longevity on the labor share is positive whereas the effect of a declining fertility is negative. In the long run, population aging reduces the labor share.
    Keywords: Population Aging, Automation, Factor Shares, Endogenous Technical Change, Endogenous Labor Supply.
    JEL: E22 J11 J22 J23 O33 O41
    Date: 2020
  12. By: Emily E. Wiemers; Scott Abrahams; Marwa AlFakhri; V. Joseph Hotz; Robert F. Schoeni; Judith A. Seltzer
    Abstract: This paper provides the first nationally representative estimates of vulnerability to severe complications from COVID-19 overall and across race-ethnicity and socioeconomic status. We use the Panel Study of Income Dynamics (PSID) to examine the prevalence of specific health conditions associated with complications from COVID-19 and to calculate, for each individual, an index of the risk of severe complications from respiratory infections developed by DeCaprio et al. (2020). We show large disparities across race-ethnicity and socioeconomic status in the prevalence of conditions, including hypertension, which are associated with the risk of severe complications from COVID-19. Moreover, we show that these disparities emerge early in life, prior to age 65, leading to higher vulnerability to such complications. Our results suggest particular attention should be paid to the risk of adverse outcomes in midlife for non-Hispanic blacks, adults with a high school degree or less, and low-income Americans.
    JEL: I1 I14 I24 J1 J11 J14
    Date: 2020–06
  13. By: Karen Arulsamy (School of Economics & Geary Institute for Public Policy, University College Dublin); Liam Delaney (School of Economics & Geary Institute for Public Policy, University College Dublin)
    Abstract: A large body of evidence shows that individuals with poor mental health have lower income over the lifespan but a dearth of evidence exists on how poor mental health affects savings behaviour. In this paper, we provide novel evidence of a mental health gap in pension participation in the UK using nationally representative longitudinal data from Understanding Society (UKHLS). Beginning in 2012, the UK government introduced automatic enrolment enabling us to assess the impact of one of the largest pension policy reforms in the world on this mental health gap. We measure mental health using the General Health Questionnaire (GHQ-12) which is a commonly used tool for measuring psychological distress. Prior to automatic enrolment, we find that male private sector employees with poor mental health are 3.2 percentage points less likely to participate in a workplace pension scheme while female private sector employees with poor mental health are 2.6 percentage points less likely to participate in a workplace pension scheme after controlling for key observables including age, education, race, marital status, number of children, occupation type, industry type, presence of a physical health condition and cognitive ability. The implementation of automatic enrolment completely removes the mental health gap in pension participation. By documenting the impact of automatic enrolment on the mental health gap in pension participation, we provide additional support for automatic enrolment policies which have already been shown to reduce gaps in pension participation among female and low income employees.
    Keywords: Mental health; psychological distress; pensions; savings; automatic enrolment; financial security; longitudinal studies
    JEL: J32 D91
    Date: 2020–06–05
  14. By: Jennifer Alonso Garcia; Michael Sherris; Samuel Thirurajah; Jonathan Ziveyi
    Keywords: taxation; retirement income; policyholder behavior; pricing; method of lines; surrender; variable annuity
    Date: 2020–06–17
  15. By: Jennifer Alonso Garcia; Hazel Bateman; Johan Bonekamp; Ralph Stevens
    Date: 2020–05–04

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