nep-age New Economics Papers
on Economics of Ageing
Issue of 2020‒11‒02
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Age-dependent risk aversion: Re-evaluating fiscal policy impacts of population ageing By Phitawat Poonpolkul
  2. Work less but stay longer. Mature worker response to a flexibility reform By Erik Hernæs; Zhiyang Jia; John Piggott; Trond Christian Vigtel
  3. The Life-Cycle Effects of Pension Reforms: A Structural Approach By Claudio Daminato; Mario Padula
  4. Working Less to Take Care of Parents? Labor Market Effects of Family Long-Term Care in Four Latin American Countries By Stampini, Marco; Oliveri, María Laura; Ibarrarán, Pablo; Londoño, Diana; Rhee, Ho June (Sean); James, Gillinda M.
  5. Health of Elderly Parents, Their Children's Labor Supply, and the Role of Migrant Care Workers By Frimmel, Wolfgang; Halla, Martin; Paetzold, Jörg; Schmieder, Julia
  6. No more visits. Informal care in nursing homes prior to the outbreak of Covid-19. By Lucas Jeanneau; Quitterie Roquebert; Marianne Tenand
  7. microWELT: Socio-Demographic Parameters and Projections for Austria, Spain, Finland, and the UK By Martin Spielauer; Thomas Horvath; Walter Hyll; Marian Fink
  8. microWELT: Microsimulation Projection of Indicators of the Economic Effects of Population Ageing Based on Disaggregated National Transfer Accounts By Martin Spielauer; Thomas Horvath; Marian Fink; Gemma Abio; Guadalupe Souto Nieves; Concepció Patxot; Tanja Istenic
  9. Money also is sunny in a retiree's world By Lorenz, Svenja; Zwick, Thomas
  10. Ageing Population and Economic Growth in Developing Countries A Quantile Regression Approach By Vo, Duc
  11. Assessing the future medical cost burden for the European health systems under alternative exposure-to-risks scenarios By Yevgeniy Goryakin; Sophie Thiébaut; Sébastien Cortaredona; M. Aliénor Lerouge; Michele Cecchini; Andrea Feigl; Bruno Ventelou
  12. The Role of Information in Explaining the Lack of Welfare-Induced Migration By Jeremy McCauley
  13. Effect of Longevity on Saving Behavior: An Experimental Study on the Simple Intertemporal Life-Cycle Problem By Tetsuo Yamamori; Kazuyuki Iwata; Akira Ogawa
  14. Microeconomic foundation for Phillips curve with three-periods overlapping generations model and negative real balance effect By Tanaka, Yasuhito
  15. A Representation of the World Population Dynamics for Integrated Assessments Models By Victor Court; Florent Mc Isaac

  1. By: Phitawat Poonpolkul
    Abstract: This study revisits optimal fiscal policies in response to population ageing by introducing an age-dependent increasing risk aversion assumption into an OLG model with risk-sensitive preferences. Under this specification, the policy evaluation factors in the welfare cost of policy-induced uncertainties and suggests that, based on future generations’ welfare, financing population ageing by either reducing social security benefits or extending the retirement age may not be as strongly preferred over raising the payroll tax rate as prior studies have suggested. Varying risk aversion also emphasizes the role of precautionary savings that causes individuals to respond slightly differently to changes in demographic structures and price variables. This, in turn, influences the redistribution of life-cycle variables and transition dynamics of aggregate variables.
    Keywords: Overlapping generations model, Increasing risk aversion, Non-expected utility
    JEL: D81 E62 J11
    Date: 2020–10
  2. By: Erik Hernæs; Zhiyang Jia (Statistics Norway); John Piggott; Trond Christian Vigtel (Statistics Norway)
    Abstract: Reducing the eligibility age for pension benefits is considered by many as a policy that will discourage labor supply by mature workers. This paper analyzes a recent Norwegian pension reform which effectively lowered the eligibility age of retirement from 67 to 62 for a group of workers. For the individuals we study, the expected present value of benefits was held constant by introducing flexible claiming and actuarially adjusting the periodic pension payment. This provides us with a unique opportunity to study the isolated impact of increased flexibility. As expected, we find that on average workers reduced their earnings and working hours. However, this initial negative effect is partially offset by an increase in labor force participation rate later at age 64 and 65. Our findings suggest that increased flexibility could potentially serve as a policy aimed at increasing the labor supply of older workers through promoting gradual exit from the labor force.
    Keywords: Retirement; Pension; Flexibility
    JEL: J14 J23 J26
    Date: 2020–08
  3. By: Claudio Daminato (Department of Management, Technology and Economics, ETH Zurich); Mario Padula (Università "Ca' Foscari" Venezia and CSEF)
    Abstract: To assess the life-cycle welfare effects of pension reforms, we provide a dynamic stochastic model of saving, portfolio choice and retirement with a pension system that operates according to the notional defined contribution principle. Relying on the exogenous variation from a sequence of Italian pension reforms, we identify and estimate the model, which is then used to draw implications of alternative pension policies. Our results also shed further light on the mechanisms behind the offset between social security and private wealth and show the importance of labor supply at retirement as an insurance mechanism against shocks to pension wealth.
    Keywords: Pension reforms, Life-Cycle, Savings, Portfolio Choice, Retirement.
    JEL: E21 H31 H55 J26
    Date: 2020–10–23
  4. By: Stampini, Marco (Inter-American Development Bank); Oliveri, María Laura (Inter-American Development Bank); Ibarrarán, Pablo (Inter-American Development Bank); Londoño, Diana (University of Rosario); Rhee, Ho June (Sean) (Middlebury College); James, Gillinda M. (Middlebury College)
    Abstract: We use data from time-use surveys and the Mexican Health and Aging Study (MHAS) to analyze the relationship between family long-term care (LTC) and female labor supply in four Latin American countries. Time-use survey data from Chile, Colombia, Costa Rica and Mexico shows that: (i) women provide the vast majority of family LTC; (ii) consistently across countries, women who provide LTC are less likely to work, and those who do work less hours per week and have a double burden of work and LTC. Multivariate analysis of longitudinal MHAS data shows that, after accounting for both individual and time fixed effects, parents' need for LTC is associated with both a significant drop in the likelihood of working (by 2.42 percentage points) and a reduction in the number of hours worked among women ages 50–64 who remain employed (by 7.03%). This finding has important gender equality implications. Also, in a region that is aging faster than any other in the world, social trends make this family provision of LTC unsustainable, increasing the need for policy action.
    Keywords: female labor supply, Long-Term Care (LTC), elderly care, care dependence, time-use surveys, Mexican Health and Aging Study (MHAS), Latin America, Chile, Colombia, Costa Rica, Mexico
    JEL: J14 J16 J18 J21 J22
    Date: 2020–10
  5. By: Frimmel, Wolfgang (University of Linz); Halla, Martin (University of Linz); Paetzold, Jörg (University of Salzburg); Schmieder, Julia (DIW Berlin)
    Abstract: We estimate the impact of parental health on adult children's labor market outcomes. We focus on health shocks which increase care dependency abruptly. Our estimation strategy exploits the variation in the timing of shocks across treated families. Empirical results based on Austrian administrative data show a significant negative impact on labor market activities of children. This effect is more pronounced for daughters and for children who live close to their parents. Further analyses suggest informal caregiving as the most likely mechanism. The effect is muted after a liberalization of the formal care market, which sharply increased the supply of foreign care workers.
    Keywords: informal care, formal care, aging, health, labor supply, labor migration
    JEL: J14 J22 I11 I18 R23
    Date: 2020–10
  6. By: Lucas Jeanneau; Quitterie Roquebert; Marianne Tenand
    Abstract: Amid the spread of the Covid-19, restrictions on external visits to nursing home residents were widely implemented. Such measures may affect the well-being of the institutionalized elderly, notably by depriving them of care that would be otherwise be provided by relatives and friends. There is little quantitative evidence about informal care receipt by residents in `normal times’. The aim of this study is twofold. First, it investigates quantitatively the importance of informal care in nursing homes, the forms it takes and its determinants outside the corona-crisis. Second, based on the findings, it discusses the likely implications of the Covid-19 restrictions on visits for nursing home residents. It relies on a sample representative of the French 60+ population living in nursing homes (N=3,223) from the 2016 CARE-Institutions survey. Over 80% of residents receive informal support. Relatives are primarily involved in help with the activities of daily living), which generally comes along with moral support. Residents are mostly helped with administrative tasks and activities related to mobility and the outside. Both the probability to receive informal care and its intensity highly depend on having close relatives alive (partner, children, siblings), age and health status. Loss of informal care due to visit bans may undermine the well-being of residents and entail medium- run adverse effects, in terms of further activity restrictions and deterioration of mental health. Policy makers should factor in the usual role of informal caregivers when assessing the benefits and costs of restrictions on visits for nursing home residents.
    Keywords: Nursing home; Informal care; Long-term care; Covid-19.
    JEL: J14 I1 C2
    Date: 2020
  7. By: Martin Spielauer (WIFO); Thomas Horvath; Walter Hyll; Marian Fink
    Abstract: The aim of this paper is twofold: First, it provides an overview of the socio-demographic core modules of the dynamic microsimulation model microWELT. Second, it describes the essential socio-demographic characteristics of four European countries – Austria, Spain, Finland, and UK as representatives of four welfare state regimes (conservative, mediterranean, universalistic, and liberal) – and the processes that drive socio-demographic change which we aim at capturing with the model. MicroWELT is developed as a tool for the comparative study of the distributional effects of four welfare state regimes, represented by the four studied countries. Processes with potential links to welfare state types include 1. the intergenerational transmission of education, 2. childlessness and fertility by education, 3. partnership behaviours and lone parenthood, 4. age at leaving home, and 5. mortality differentials by sex and education. Through microWELT projections, we identify the impact of these processes on the future population composition by age, sex, education, and family characteristics of the studied countries. This paper is part of a series of related papers and other resources which together build comprehensive documentation and presentation of the research performed developing and using microWELT. All materials are available at the project website
    Keywords: Dynamic Microsimulation, Demographic Change, Welfare State Regimes
    Date: 2020–10–13
  8. By: Martin Spielauer (WIFO); Thomas Horvath; Marian Fink; Gemma Abio; Guadalupe Souto Nieves; Concepció Patxot; Tanja Istenic
    Abstract: This paper studies how changes in the population composition by education and family characteristics impact on indicators of the economic effects of population ageing based on National Transfer Accounts (NTAs). NTAs constitute cross-sectional per-capita age-profiles of the key variables of national accounts consumption, income, saving, and public transfers, incorporating an estimation of private transfers. A variety of indicators based on NTA data combined with population projections was developed in the literature, of which we have selected two for our analysis: the Support Ratio (SR) and the Impact Index (IMP). We complement existing projections by using new disaggregated NTA data by education and family type, contrasting the results to the same indicators based on NTAs by age. Our projection analysis is performed using the dynamic microsimulation model microWELT. The model provides the required detailed socio-demographic projections and incorporates the NTA accounting framework. Our results show that indicators based on disaggregated data can give a very distinct picture of the economic effects of population ageing, as the burden of ageing is alleviated by the education expansion. Our study compares results for Austria and Spain.
    Keywords: Microsimulation, Education, Demographic Change, National Transfer Accounts
    Date: 2020–10–20
  9. By: Lorenz, Svenja; Zwick, Thomas
    Abstract: This paper shows that labor income plays an important positive role for the decision to work after retirement. Especially individuals who have the chance to substantially supplement their pension entitlements have a higher earnings elasticity. Men are more attracted by earnings incentives than women. Also individuals who work until retirement can easier be attracted by financial incentives to work after retirement than those with bridge options. Our analysis is based on a representative and large administrative individual career data set that includes employer information. We use an endogeneity correction model to estimate labor and non-labor financial determinants of labor market participation after retirement.
    Keywords: work after retirement,labor and non-labor financial incentives,empirical study
    JEL: J14 J22 J26
    Date: 2020
  10. By: Vo, Duc
    Abstract: The economic effects and consequences of an aging population on economic growth in terms of productivity and demand have attracted great attention from policy makers, particular in emerging countries. This study examines the effect of an aging population on economic growth in 84 developing countries in the period 1971–2015, using panel fixed effects and quantile regression. The results confirm a negative effect on economic growth in the long run from having a high share of young people (14 years old and younger). However, in the long run, a positive relationship exists between the share of those 65 and older and economic performance. The quantile regression results confirm the importance of an aging population on economic growth at most percentiles. However, from lower to higher percentiles, the estimated magnitudes differ
    Keywords: Aging population; developing countries; quantile regression
    JEL: J10 O11
    Date: 2019–12–18
  11. By: Yevgeniy Goryakin (OECD - The Organisation for Economic Coopération and Development); Sophie Thiébaut (Imperial College Business School London); Sébastien Cortaredona (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université); M. Aliénor Lerouge (OECD - The Organisation for Economic Coopération and Development); Michele Cecchini (OECD - The Organisation for Economic Coopération and Development); Andrea Feigl (OECD - The Organisation for Economic Coopération and Development); Bruno Ventelou (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université)
    Abstract: Background: Ageing populations and rising prevalence of non-communicable diseases (NCDs) increasingly contribute to the growing cost burden facing European healthcare systems. Few studies have attempted to quantify the future magnitude of this burden at the European level, and none of them consider the impact of potential changes in risk factor trajectories on future health expenditures. Methods: The new microsimulation model forecasts the impact of behavioural and metabolic risk factors on NCDs, longevity and direct healthcare costs, and shows how changes in epidemiological trends can modify those impacts. Economic burden of NCDs is modelled under three scenarios based on assumed future risk factors trends: business as usual (BAU); best case and worst case predictions (BCP and WCP). Findings: The direct costs of NCDs in the EU 27 countries and the UK (in constant 2014 prices) will grow under all scenarios. Between 2014 and 2050, the overall healthcare spending is expected to increase by 0.8% annually under BAU. In the all the countries, 605 billion Euros can be saved by 2050 if BCP is realized compared to the BAU, while excess spending under the WCP is forecast to be around 350 billion. Interpretation: Although the savings realised under the BCP can be substantial, population ageing is a stronger driver of rising total healthcare expenditures in Europe compared to scenario-based changes in risk factor prevalence.
    Keywords: Health economics,Europe,Medical risk factors,European Union,Noncommunicable diseases,Cancer risk factors,Cardiovascular disease risk,Obesity
    Date: 2020–09
  12. By: Jeremy McCauley
    Abstract: This paper examines the role of information as a driver of domestic welfare-induced migration decisions. I exploit a policy reform in England where the government began publicly releasing quality star ratings for each area’s social services (social care). I study the effects of this “information shock†on the main service users, the elderly, and find a one star increase in publicly-released rating is associated with a 1.3% increase in the elderly population of that area. Based on empirical evidence, I estimate a search model with learning, where the elderly search for areas with better social services and gradually learn their true quality. Mimicking the information shock, the model reveals that individuals are more influenced by the rating of their own area than by ratings for other areas. Those induced to move by the information shock experience welfare increases valued at £600 per year.
    Date: 2020–10–22
  13. By: Tetsuo Yamamori; Kazuyuki Iwata; Akira Ogawa
    Abstract: To examine how the length of retirement life affects people's mistakes in choosing a saving plan, a laboratory experiment was conducted in which subjects face a simple life-cycle consumption/saving problem without interest rate, price and income volatilities, and any uncertainty. Lifetime is divided into working periods with a certain and constant amount of income and retirement periods with no income. We compared three treatment groups: the retirement periods are the last 5 periods out of 25 life periods (SR), these are the last 16 periods out of 36 life periods (LL), and these are the last 16 periods out of 25 life periods (SW). In all treatments, the subject's lifetime income was the same. Our main findings are twofold. First, the magnitude of misconsumption (i.e., the deviation from conditional optimal consumption) is significantly positive for each treatment. Thus, people cannot find an optimal saving plan even in our simple life-cycle problem. Second, the subjects overreacted to both the long life and large income, which caused over-saving behavior in LL and under-saving behavior in SW, whereas there is no particular trend for mistakes in SR.
    Date: 2020–09
  14. By: Tanaka, Yasuhito
    Abstract: We show a negative relation between the inflation rate and the unemployment rate , that is, the Phillips curve using a three-periods overlapping generations (OLG) model with childhood period and pay-as-you-go pension for older generation under monopolistic competition. We consider the effects of a change in nominal wage rate with negative real balance effect and the effects of an exogeneous change in labor productivity. In a three periods OLG model there may exist a negative real balance effect. A fall (or rise) in nominal wage rate induces a fall (or rise) in the price, then by negative real balance effect the unemployment rate rises (or falls), and we get a negative relation between the inflation rate and the unemployment rate. This conclusion is based on the premise of utility maximization of consumers and profit maximization of firms. Therefore, we presented a microeconomic foundation of the Phillips curve. About the effects of a change in labor productivity we obtain similar results. We also examine the effects of fiscal policy financed by seigniorage.
    Keywords: Phillips Curve, Microeconomic foundation, Three-periods overlapping generations model, Monopolistic competition, Negative real balance effect.
    JEL: E12 E24 E31
    Date: 2020–10–16
  15. By: Victor Court (IFP School, Institut Louis Bachelier); Florent Mc Isaac (Institut Louis Bachelier, AFD - Agence française de développement)
    Abstract: Using the gross world product (GWP) as the only exogenous input variable, we design a model able to accurately reproduce the global population dynamics over the period 1950-2015. For any future increasing GWP scenarios, our model yields very similar population trajectories. The major implication of this result is that both the United Nations and the Intergovernmental Panel on Climate Change assume future decoupling possibilities between economic development and fertility that have never been witnessed during the last sixty-five years. In case of an abrupt collapse of the economic production, our model responds with higher death rates that are more than offset by increasing birth rates, leading to a relatively larger and younger population. Finally, we add to our model an excess mortality function associated with climate change. Estimates of additional climate-related deaths for 2095-2100 range from 1 million in a +2 • C scenario to 6 million in a +4 • C scenario.
    Keywords: Climate change,System dynamics,Global population model,Demographic transition
    Date: 2020–10–25

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