nep-age New Economics Papers
on Economics of Ageing
Issue of 2022‒01‒24
nine papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Early retirement of employees in demanding jobs: Evidence from a German pension reform By Geyer, Johannes; Lorenz, Svenja; Zwick, Thomas; Bruns, Mona
  2. The causal effect of partial retirement on older workers’ labor force participation By Rebecca Schrader
  3. The impact of adolescent psychological distress on access and participation in employer sponsored pension plans in the US By Karen Arulsamy
  4. Biased Survival Expectations and Behaviours: Does Domain Specific Information Matter? By Costa-Font, Joan; Vilaplana-Prieto, Cristina
  5. Choice Overload? Participation and Asset Allocation in French Employer-Sponsored Saving Plans By Marie Briere; James M. Poterba; Ariane Szafarz
  6. What Drives Variation in Investor Portfolios? Evidence from Retirement Plans By Mark L. Egan; Alexander MacKay; Hanbin Yang
  7. Taking the Pulse of Nations: a Biometric Measure of Well-being By David G. Blanchflower; Alex Bryson
  8. The Effect of Labor Market Shocks across the Life Cycle By Kjell G. Salvanes; Barton Willage; Alexander L.P. Willén
  9. The Effect of Age Diversity in Groups on Peer Evaluations and Individual Performance By Görlitz, Katja; Sels, Tim

  1. By: Geyer, Johannes; Lorenz, Svenja; Zwick, Thomas; Bruns, Mona
    Abstract: Early retirement options are usually targeted at employees at risk of not reaching their regular retirement age in employment. An important at-risk group comprises employees who have worked in demanding jobs for many years. This group may be particularly negatively affected by the abolition of early retirement options. To measure differences in labor market reactions of employees in low- and high-demand jobs, we exploit the quasi-natural experiment of a cohort-specific pension reform that increased the early retirement age for women from 60 to 63 years. Based on a large administrative dataset, we use a regression-discontinuity approach to estimate the labor market reactions. Surprisingly, we find the same relative employment increase of about 25% for treated women who were exposed to low and to high job demand. For older women in demanding jobs, we also do not find substitution effects into unemployment, partial retirement, disability pension, or inactivity. Eligibility for the pension for women required highlabor market attachment; thus, we argue that this eligibility rule induced a positive selection of healthy workers into early retirement.
    Keywords: pension reform,job demand,early retirement,quasi-experimental variation
    JEL: J14 J18 J22 J26 H31
    Date: 2021
  2. By: Rebecca Schrader
    Abstract: In this study, I investigate the effect of partial retirement at the firm level on older workers’ labor participation. Thereby, I contribute to the controversial debate about the effects of partial retirement. Using detailed administrative employer-employee data from Germany, I exploit the introduction of partial retirement options in Germany related to the law on PR of 1996 within a difference-in-differences framework. My results show that older workers’ labor participation responds to the introduction of partial retirement and reveals substantial effect heterogeneities with regard to the specific partial retirement arrangement. Overall, I find evidence that partial retirement has the potential to extend older workers’ labor participation and thereby to serve as an instrument to lower the financial burden of governments struggling with the economic costs of demographic aging.
    Keywords: older workers, partial retirement, retirement decision, difference-in-differences
    JEL: J14 J22 J26
    Date: 2021–12
  3. By: Karen Arulsamy (Geary Institute for Public Policy, University College Dublin)
    Abstract: A large body of evidence shows that poor mental health early in life reduces income over the lifespan, but a dearth of evidence exists on how early psychological distress affects long-term savings behaviour. By employing a nationally representative cohort panel (NLSY1997) and linear probability models, this paper provides novel evidence that poor mental health early in life can have persistent effects on lifelong financial security via lower retirement savings. Adolescents (16 to 20 years old) with poor mental health are 4.7 percentage points less likely to have access to and 8.9 percentage points less likely to participate in employer sponsored pension plans at age 30-35. There is no significant difference in pension participation rates when individuals with poor mental health have access to plans. The negative association between adolescent mental health and pension participation is mediated by access to a plan, education, income and employment status. These findings suggest that selection into less favourable employment conditions perpetuated by early mental health problems lowers access to and participation in employer sponsored pension plans.
    Keywords: Mental health; psychological distress; pensions; retirement savings; financial security; longitudinal studies; cohort studies
    JEL: J32 D91 G41
    Date: 2022–03–11
  4. By: Costa-Font, Joan (London School of Economics); Vilaplana-Prieto, Cristina (Universidad de Murcia)
    Abstract: We study biased survival expectations across two domains and examine whether such biased expectations influence health and financial behaviors. Combining individual-level longitudinal data, retrospective, and end of life data from several European countries for more than a decade, we estimate time-varying individual level bias in 'survival expectations' (BSE) at the individual level and compare it biased 'meteorological expectations' (BME). We exploit variation in an individual's family history (parental age at death) to estimate the effect of BSE on health and financial behaviors and compare it to BME, and other tests to discuss whether the effect of BSE results from the effect of private information. We find that BSE increases the probability of adopting less risky behaviors and financial behaviors. We estimate that a one standard deviation increase in BSE reduces the average probability of smoking by 48% and holding retirement accounts by 69%. In contrast, BME barely affects healthy behaviors, and is only associated with a change in some financial behaviors.
    Keywords: biased expectations, survival expectations, meteorological expectations, longevity optimism, private information, health behaviour, financial behaviour
    JEL: I18 D14 G22
    Date: 2021–11
  5. By: Marie Briere; James M. Poterba; Ariane Szafarz
    Abstract: This paper employs administrative data from one of the largest plan providers in France to investigate the role of plan and default characteristics in affecting whether employees participate in the plan and whether they accept its default investment option. The dataset includes information on the saving choices of 680,392 active employees at 1,610 firms. French employers have wide discretion in structuring employee saving plans. All plans must offer medium-term investments, which cannot be accessed for five years. Employers may also offer long-term investments that cannot be accessed until retirement. When plans include a long-term option, participation is lower than when the plan offers only more liquid medium term investments. The presence of a long-term saving option also reduces the take-up of the plan’s default investment allocation, which must include a long-term component. One interpretation of the findings, consistent with the theory of choice overload, is that some employees are unwilling to forego the liquidity of the medium-term option but find it costly to make an active election when they opt out of the default, and therefore choose not to participate in the plan at all.
    JEL: G41 G5 G51 H24 J14
    Date: 2021–12
  6. By: Mark L. Egan; Alexander MacKay; Hanbin Yang
    Abstract: We study empirical patterns in investment behavior using a comprehensive data set of defined contribution plans. Using plan-level portfolio allocation data for the near universe of 401(k) plans over the period 2009-2019, we document substantial differences in investment behavior across plans. Plans with wealthier and more educated participants tend to have higher equity exposure while plans with more retirees and minorities tend to have lower equity exposure. These patterns cannot be explained by differences in 401(k) menus or participation costs. To help interpret these facts, we use a revealed preference approach to estimate investors' expectations of stock market returns and risk aversion, where we allow investors to have heterogeneous risk aversion and subjective and potentially biased beliefs. We find that there is substantial variation in both beliefs and risk aversion across investors and over time, and that both sources of variation help explain investors' portfolio decisions. We also provide new evidence to understand how investors form beliefs. We find that investors extrapolate beliefs from past fund returns even when they initially allocate portfolios in new plans. We also find that investors extrapolate beliefs about the market from the past performance of their employer, which suggests that investor experience helps shape beliefs.
    JEL: G0 G11 G12 G40 G5 G51 J32
    Date: 2021–12
  7. By: David G. Blanchflower; Alex Bryson
    Abstract: A growing literature identifies associations between subjective and biometric indicators of wellbeing. These associations, together with the ability of subjective wellbeing (SWB) metrics to predict health and behavioral outcomes, have spawned increasing interest in SWB as an important concept in its own right. However, some social scientists continue to question the usefulness of SWB metrics. We contribute to this literature in three ways. First, we introduce a biometric measure of wellbeing – pulse – which has been largely overlooked. Using nationally representative data on 165,000 individuals from the Health Survey for England (HSE) and Scottish Health Surveys (SHeS) we show that its correlates are similar in a number of ways to those for SWB, and that it is highly correlated with SWB metrics, as well as self-assessed health. Second, we examine the determinants of pulse rates in mid-life (age 42) among the 9,000 members of the National Child Development Study (NCDS), a birth cohort born in a single week in 1958 in Britain. Third, we track the impact of pulse measured in mid-life (age 42) on health and labor market outcomes at age 50 in 2008 and age 55 in 2013. The probability of working at age 55 is negatively impacted by pulse rate a decade earlier. The pulse rate has an impact over and above chronic pain measured at age 42. General health at 55 is lower the higher the pulse rate at age 42, while those with higher pulse rates at 42 also express lower life satisfaction and more pessimism about the future at age 50. Taken together, these results suggest social scientists can learn a great deal by adding pulse rates to the metrics they use when evaluating people’s wellbeing.
    JEL: I10 J1
    Date: 2021–12
  8. By: Kjell G. Salvanes; Barton Willage; Alexander L.P. Willén
    Abstract: Adverse economic shocks occur frequently and may cause individuals to reevaluate key life decisions in ways that have lasting consequences for themselves and the economy. These life decisions are fundamentally tied to specific periods of an individual’s career, and economic shocks may therefore have substantially different impacts on individuals – and the broader economy - depending on when they occur. We exploit mass layoffs and establishment closures to examine the impact of adverse shocks across the life cycle on labor market outcomes and major life decisions: human capital investment, mobility, family structure, and retirement. Our results reveal substantial heterogeneity on labor market effects and life decisions in response to economic shocks across the life cycle. Individuals at the beginning of their careers invest in human capital and relocate to new labor markets, individuals in the middle of their careers reduce fertility and adjust family formation decisions, and individuals at the end of their careers permanently exit the workforce and retire. As a consequence of the differential interactions between economic shocks and life decisions, the very long-term career implications of labor shocks vary considerably depending on when the shock occurs. We conclude that effects of adverse labor shocks are both more varied and more extensive than has previously been recognized, and that focusing on average effects among workers across the life cycle misses a great deal.
    Keywords: labor supply, human capital, education, fertility, family formation, mobility, retirement, disability, economic shocks, job displacement
    JEL: I20 J63
    Date: 2021
  9. By: Görlitz, Katja (Hochschule der Bundesagentur für Arbeit (HdBA)); Sels, Tim (Freie Universität Berlin)
    Abstract: This study analyzes how individuals evaluate their peers' performance in a high stakes tournament in response to being randomly assigned to an age homogenous or heterogeneous group using data from two TV shows. The data also allows us to explore superior evaluations because it contains objective ratings from an independent expert. Additionally, this study investigates how age diverse groups affect individual performance in professional golf tournaments. The results show that peer and superior evaluations as well as individual performance are lower in age diverse groups. Further evidence suggests that these effects occur in the short run, but fade away once group members have gotten to know each other.
    Keywords: age diversity, peer evaluation, superior evaluation, performance
    JEL: J14 M12 M54
    Date: 2021–12

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