nep-age New Economics Papers
on Economics of Ageing
Issue of 2021‒02‒22
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Linking retirement age to life expectancy does not lessen the demographic implications of unequal lifespans By Jesús-Adrián Álvarez; Malene Kallestrup-Lamb; Søren Kjærgaard
  2. The retirement age and the pension system, the labor market and the economy By Agnieszka Chlon-Dominczak; Filip Chybalski; Michal Rutkowski
  3. A simulation framework to project pension spending: The Czech pension system By Falilou Fall; Paul Cahu
  5. Simulation of the Costs and Benefits of Delayed Retirement: Evidence from Vietnam By Nguyen, Cuong
  6. Cognitive Impairment and Prevalence of Memory-Related Diagnoses among U.S. Older Adults By Qian, Yuting; Chen, Xi; Tang, Diwen; Kelley, Amy S.; Li, Jing
  7. Endogenous life expectancy and R&D-based economic growth By Tscheuschner, Paul
  8. Introducing flexible retirement : a dynamic model By András Simonovits
  9. Auto-Enrollment Retirement Plans for the People: Choices and Outcomes in OregonSaves By John Chalmers; Olivia S. Mitchell; Jonathan Reuter; Mingli Zhong
  10. Flexible transition timing in discrete-time multistate life tables using Markov chains with rewards By Daniel C. Schneider; Mikko Myrskylä; Alyson A. van Raalte
  11. Homeownership and portfolio choice over the generations By Paz-Pardo, Gonzalo
  12. Education, Skill Training, and Lifelong Learning in the Era of Technological Revolution By Kim , Jinyoung; Park , Cyn-Young
  13. Modelling the economic impact of reducing loneliness in community dwelling older people in england By McDaid, David; Park, A-La
  14. Long-term unemployment subsidies and middle-age disadvantaged workers’ health By José Ignacio Garcia-Pérez; Manuel Serrano-Alarcón; Judit Vall Castelló
  15. Consumption and Income Inequality across Generations By Giovanni Gallipoli; Hamish Low; Aruni Mitra

  1. By: Jesús-Adrián Álvarez (University of Southern Denmark); Malene Kallestrup-Lamb (Aarhus University and CREATES); Søren Kjærgaard (IST, EBB, Epidemiology, Biostatistics and Biodemography,)
    Abstract: The fact that individuals are living longer and thus spending more time in retirement challenges the sustainability of pension systems. This has forced policy makers to rethink the design of pension plans to mitigate the burden of increased longevity. Countries such as the Netherlands, Estonia, Denmark and Finland have implemented reforms that link retirement age to changes in life expectancy. However, the demographic and financial implications of such linkages are not well understood. This study analyses the Danish case, using high-quality data from population registers during the period 1985-2016. We identify trends in demographic and actuarial measures after retirement by sex and socio-economic group. We also introduce a new decomposition method to disentangle the demographic sources of socio-economic disparities in pension costs per year of expected benefits. We reach two main results. First, linking retirement age to life expectancy increases uncertainty about length of life after retirement, with the financial cost becoming more sensitive to changes in mortality. Second, socio-economic disparities in lifespans persist regardless of the age at which individuals retire. Males from lower socio-economic groups are at a greater disadvantage, because they spend fewer years in retirement, pay higher pension costs per year of expected benefits and are exposed to higher longevity risk than the rest of the population. This disadvantageous setting is magnified when retirement age is linked to life expectancy.
    Keywords: Danish pension system, longevity, socio-economic disparities, lifespan inequality, pensions, mortality heterogeneity
    JEL: J26 J11 H55
    Date: 2020–12–16
  2. By: Agnieszka Chlon-Dominczak; Filip Chybalski; Michal Rutkowski
    Abstract: European countries face a challenge related to the economic and social consequences of their societies’ aging. Specifically, pension systems must adjust to the coming changes, maintaining both financial stability, connected with equalizing inflows from premiums and spending on pensions, and simultaneously the sufficiency of benefits, protecting retirees against poverty and smoothing consumption over their lives, i.e. ensuring the ability to pay for consumption needs at each stage of life, regardless of income from labor.
    Keywords: retirement age, pension system, labor market, pension, aging of the population, Poland
    JEL: J14 J21 J26
    Date: 2021–02–02
  3. By: Falilou Fall; Paul Cahu
    Abstract: This paper presents a simulation framework developed to assess the impact of ageing on the financial sustainability of the Czech pension system. It accompanies the publication OECD Reviews of Pension Systems: Czech Republic. The framework has two components: a macroeconomic model to project long-term GDP and a cohort model to simulate the evolution of pensions. The macroeconomic model takes into account the evolution of the labour force and productivity. The cohort model simulates the career of a representative sample of the working-age population and their path in retirement. It replicates and projects the main features of the labour market, in particular, participation, wage and unemployment. It captures non-linear features of the pension system and distributional effects. The model estimates and simulates the main demographic variables of the pension system, in particular, the number of old-age pensioners and disability pensioners. It allows to simulate different policy options to close the financing gap of the pension system. Pension spending is projected to increase to 11.9% of GDP in 2060 from 8.2% in 2018, leading to increasing deficits of the pension system. Among the different options to close the financing gap, further increasing the retirement age after 2030 in line with life expectancy gains appears to be the most efficient policy measure to boost growth and reduce the financing needs. However, additional measures would be needed to close the financing gap of the pension system.
    Keywords: Ageing, Czech Republic, financial sustainability of pension systems, Pay-as-you-go-system, pension reform, pension simulation frramework, pensions
    JEL: H55 J11 J26 J18
    Date: 2021–02–16
  4. By: Alicja Jajko-Siwek (Poznań University of Economics and Business, Brzozowa 1, Poland)
    Abstract: Adequacy is the one of the most important issue for every pension system and especially for every future pensioner. Therefore, the question arises what people should done during his life to achieve enough high pension benefit to maintain after retirement the previous standard of living. The article aims to characterize the life trajectory of people who have obtained an adequate retirement benefit in Poland. Polish pension system can be treated as an example of defined benefit scheme. This research has been done by using sequence analysis and cluster analysis. The study used data come from the seventh round of SHARE 50+ in Europe (SHARELIFE). The study was conducted separately for women and men. Four variables were taken into account: time of education, time of work, number of children and retirement age. Obtained results allow to indicate how long education and professional work should be continued, as well as what number of children contributes to achieving an adequate pension. The results show differences in the life cycle of retired men and women as well.
    Keywords: Adequacy, pension benefit, sequence analysis
    JEL: C18 H55 J32
    Date: 2020–06
  5. By: Nguyen, Cuong
    Abstract: Vietnam is experiencing one of the fastest rates of population ageing in the world, yet has a low retirement age at 55 for women and 60 for men. This paper identifies the impacts of raising the retirement age and assesses how these would translate into either net costs or net gains for the Vietnamese economy in the long term. First, the paper uses national and household-level data to assess how a change in the employment rate of older workers would impact the employment status and wages of younger workers and impact the school attendance of their grandchildren. Second, this paper conducts a cost-benefit analysis to assess the net annual benefit of raising the retirement age according to four policy scenarios. This calculation is used to project the net benefits of each scenario over 33 years. The paper finds that increasing the employment rate will not impact the employment rate of younger workers, and will only negatively impact their wages in households where an older woman would stop helping with housework in order to resume formal employment. Given these findings, this paper concludes that raising the retirement age will result in a net gain in all four policy scenarios and that gains will increase the higher the retirement age is raised. The gains from raising women’s retirement age will exceed those of raising men’s age in the long term as the female share of the formal workforce continues to grow.
    Keywords: Retirement age, delayed retirement, simulation, older people, Vietnam.
    JEL: J1
    Date: 2019–12–15
  6. By: Qian, Yuting (Weill Cornell Medical College); Chen, Xi (Yale University); Tang, Diwen (Fudan University, China); Kelley, Amy S. (Icahn School of Medicine); Li, Jing (Weill Cornell Medical College)
    Abstract: Cognitive impairment creates significant challenges to health and well-being of the fast-growing aging population. Early recognition of cognitive impairment may confer important advantages, allowing for diagnosis and appropriate treatment, education, psychosocial support, and improved decision-making regarding life planning, health care, and financial matters. Yet the prevalence of memory-related diagnoses among older adults with early symptoms of cognitive impairment is unknown. Using 2000-2014 Health and Retirement Survey - Medicare linked data, we leveraged within-individual variation in a longitudinal cohort design to examine the relationship between incident cognitive impairment and receipt of diagnosis among American older adults. Receipt of a memory-related diagnosis was determined by ICD-9-CM codes. Incident cognitive impairment was assessed using the modified Telephone Interview of Cognitive Status (TICS). We found overall low prevalence of early memory-related diagnosis, or high rate of underdiagnosis, among older adults showing symptoms of cognitive impairment, especially among non-whites and socioeconomically disadvantaged subgroups. Our findings call for targeted interventions to improve the rate of early diagnosis, especially among vulnerable populations.
    Keywords: cognitive impairment, cognitive aging, dementia, Medicare, memory-related diagnosis
    JEL: I11 I14 J14 I18 R20
    Date: 2021–02
  7. By: Tscheuschner, Paul
    Abstract: We propose an overlapping generations framework in which life expectancyis determined endogenously by governmental health investments. As a novelty, we are able to examine the feedback effects between life expectancy and R&D-driven economic growth for the transitional dynamics. We find that i) higher survival induces economic growth through higher savings and higherlabor force participation; ii) longevity-induced reductions in fertility hampereconomic development; iii) the positive life expectancy effects of larger savingsand higher labor force participation outweigh the negative effect of a reductionin fertility, and iv) there exists a growth-maximizing size of the health caresector that might lie beyond what is observed in most countries. Altogether, the results support a rather optimistic view on the relationship between lifeexpectancy and economic growth and contribute to the debate surroundingrising health shares and economic development.
    Keywords: long-run growth,horizontal innovation,increasing life expectancy,welfare effects of changing longevity,size of health-care sectors
    JEL: I15 J11 J13 J17 O41
    Date: 2021
  8. By: András Simonovits (ELKH KRTK KTI and BUT MI, Budapest, Hungary)
    Abstract: Typically economists arguing for flexible (or variable) retirement age, but they rely on steady state analysis. In this paper we consider the replacement of a mandatory retirement system with a flexible one in real time. We show that even if early retirement is duly punished, diminishing the effective retirement age by 1 year raises the first year's and the total expenditures during transition by 8% and 70% of the original annual expenditure, respectively.
    Keywords: retirement age, flexible retirement age, variable retirement age, transition cost
    JEL: H11 H55
    Date: 2021–02
  9. By: John Chalmers; Olivia S. Mitchell; Jonathan Reuter; Mingli Zhong
    Abstract: Oregon recently launched an automatic-enrollment retirement savings program for private sector workers lacking access to other workplace retirement plans. We analyze participation choices, account balances, and inflow/outflow data using administrative records between August 2018 and April 2020. Within the small to mid-sized firms served by OregonSaves, estimated average after-tax earnings are low ($2,365 per month) and turnover rates are high (38.2% per year). Younger employees and employees in larger firms are less likely to opt out, but participation rates fall over time. The most common reason given for opting out is “I can’t afford to save at this time,” but the second most common is “I have my own retirement plan.” As of April 2020, 67,731 accounts had positive account balances, holding $51.1 million in total assets. The average balance is $754, but with considerable dispersion; younger workers accumulating the fewest assets due to higher job turnover. Overall, we conclude that OregonSaves has meaningfully increased employee savings by reducing search costs. The 34.3% of workers with positive account balances in April 2020 is comparable to the marginal increase in participation at larger firms in the private sector. Employees opting out of OregonSaves are often doing so for rational reasons.
    JEL: D14 G5 J26 J32
    Date: 2021–02
  10. By: Daniel C. Schneider (Max Planck Institute for Demographic Research, Rostock, Germany); Mikko Myrskylä (Max Planck Institute for Demographic Research, Rostock, Germany); Alyson A. van Raalte (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: Discrete-time multistate life tables are attractive because they are easier to understand and apply in comparison to their continuous-time counterparts. While such models are based on a discrete time grid, it is often useful to calculate derived magnitudes, like state occupation times, under assumptions that posit that transitions take place at other times, such as mid-period. Unfortunately, currently available models allow only a very limited set of choices about transition timing. We propose to utilize Markov chains with rewards as an intuitive and general way of modelling the timing of transitions. Combining existing discrete-time models with the rewards methodology results in an estimation strategy that features easy parameter estimation, flexible transition timing, and little theoretical overhead. We illustrate the usefulness of rewards- based multistate life tables with SHARE data for the estimation of working life expectancy using different retirement transition timings. We also demonstrate that, for the single-state case, the rewards-based multistate life tables match traditional life table methods exactly. We provide code to replicate all results of the paper, as well as R and Stata packages for general use of the method proposed.
    JEL: J1 Z0
    Date: 2021
  11. By: Paz-Pardo, Gonzalo
    Abstract: Earnings are riskier and more unequal for households born in the 1960s and 1980s than for those born in the 1940s. Despite the improvements in financial conditions, younger generations are less likely to be living in their own homes than older generations at the same age. By using a life-cycle model with housing and portfolio choice that includes flexible earnings risk and aggregate asset price risk, I show that changes in earnings dynamics account for a large part of the reduction in homeownership across generations. Lower-income households find it harder to buy housing, and as a result accumulate less wealth. JEL Classification: D31, E21, E24, G11, J31
    Keywords: earnings risk, housing demand, intergenerational inequality, wealth accumulation
    Date: 2021–02
  12. By: Kim , Jinyoung (Korea University); Park , Cyn-Young (Asian Development Bank)
    Abstract: Rapid technological development makes skills depreciate faster than in the past while new technologies generate gaps in workers’ skills and call for the acquisition of proper skills and lifelong learning. Proper skill mixes for future jobs include strong cognitive skills, basic information and communication technology, and analytical skills, as well as a range of noncognitive skills such as creativity, problem-solving, critical thinking, and communication. Retraining and reskilling workers is also crucial. All these changes lead to a major rethinking of education and skill training throughout a person’s life. This paper reviews the recent studies on human capital and skill formation in the era of rapid technological progress. Findings from these studies particularly in labor economics can shed light on new directions for lifelong education policies.
    Keywords: education policy; lifelong learning; population aging; technology
    JEL: I25 I28 J00 J24 O15 O33
    Date: 2020–01–23
  13. By: McDaid, David; Park, A-La
    Abstract: Loneliness has been associated with poor mental health and wellbeing. In England, a 2018 national strategy on loneliness was published, and public health guidelines recommend participation in social activities. In the absence of existing economic evidence, we modelled the potential cost effectiveness of a service that connects lonely older people to social activities against no-intervention. A 5-year Markov model was constructed from a health and social care perspective. Parameters were drawn from the literature, with the intervention structure based on an existing loneliness alleviation programme implemented in several settings across England. Univariate and probabilistic sensitivity analyses were undertaken. The total expected cost per participant in the intervention group is £ 7131 compared to £ 6783 in the usual care group with 0.45 loneliness free years (LFY) gained. The incremental cost per LFY gained is £ 768; in the probabilistic sensitivity analysis the intervention is cost saving in 3.5% of iterations. Potentially such interventions may be cost-effective but are unlikely to be cost-saving even allowing for sustained effects and cumulative adverse health and social care events averted. Empirical studies are needed to determine the cost-effectiveness of these interventions, ideally mapping changes in loneliness to the quality of life, in order to allow the key metric in health economic studies, cost per quality adjusted life year to be estimated.
    Keywords: Cost-effectiveness analysis; Loneliness; Older people; Social activities
    JEL: J1
    Date: 2021–02–03
  14. By: José Ignacio Garcia-Pérez (Universidad Pablo Olavide & FEDEA); Manuel Serrano-Alarcón (NOVA University of Lisbon & CRES-UPF); Judit Vall Castelló (Universitat de Barcelona & IEB & CRES-UPF)
    Abstract: We estimate the labour market and health effects of a long-term unemployment (LTU) subsidy targeted to middle aged disadvantaged workers. In order to do so, we exploit a Spanish reform introduced in July 2012 that increased the age eligibility threshold to receive the subsidy from 52 to 55. Using a within-cohort identification strategy, we show that men ineligible for the subsidy were more likely to leave the labour force. In terms of health outcomes, although we do not report impacts on hospitalizations when considering the whole sample, we do find significant results when we separate the analysis by main diagnosis and gender. More specifically, we show a reduction by 12.9% in hospitalizations due to injuries as well as a drop by 2 percentage points in the probability of a mental health diagnosis for men who were eligible for the LTU subsidy. Our results highlight the role of long-term unemployment benefits as a protecting device for the health (both physical and mental) of middle aged, low educated men who are in a disadvantaged position in the labour market.
    Keywords: Disadvantaged workers, unemployment subsidies, health effects
    JEL: I10 J65
    Date: 2020
  15. By: Giovanni Gallipoli (UBC; CEPR; HCEO; Rimini Centre for Economic Analysis); Hamish Low (University of Oxford, UK; IFS); Aruni Mitra (European University Institute, Italy)
    Abstract: We characterize the joint evolution of cross-sectional inequality in earnings, other sources of income and consumption across generations in the U.S. To account for cross-sectional dispersion, we estimate a model of intergenerational persistence and separately identify the influences of parental factors and of idiosyncratic life-cycle components. We find evidence of family persistence in earnings, consumption and saving behaviours, and marital sorting patterns. However, the quantitative contribution of idiosyncratic heterogeneity to cross-sectional inequality is significantly larger than parental effects. Our estimates imply that intergenerational persistence is not high enough to induce further large increases in inequality over time and across generations.
    Keywords: income, consumption, intergenerational persistence, inequality
    JEL: D15 D64 E21
    Date: 2021–02

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