nep-age New Economics Papers
on Economics of Ageing
Issue of 2023‒06‒19
fourteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. 'Earned, Not Given'? The Effect of Lowering the Full Retirement Age on Retirement Decisions By Dolls, Mathias; Krolage, Carla
  2. Long-Run Consequences of Informal Elderly Care and Implications of Public Long-Term Care Insurance By Korfhage, Thorben; Fischer, Björn
  3. Can pensions save lives? Evidence from the introduction of old-age assistance in the UK By Jäger, Philipp
  4. "The Great Retirement Boom": The Pandemic-Era Surge in Retirements and Implications for Future Labor Force Participation By Joshua Montes; Christopher L. Smith
  5. Pensions and informality in a structuralist dual-economy model By David Cano Ortiz
  6. Longer Careers: A Barrier to Hiring and Coworker Advancement? By Ferrari, Irene; Kabátek, Jan; Morris, Todd Stuart
  7. Extrapolative Income Expectations and Retirement Savings By Marta Cota
  8. Forward-Looking Labor Supply Responses to Changes in Pension Wealth: Evidence from Germany By Artmann, Elisabeth; Fuchs-Schündeln, Nicola; Giupponi, Giulia
  9. Finanzrisiken für den Bund durch die demographische Entwicklung in der Sozialversicherung: Reformszenarien By Werding, Martin; Läpple, Benjamin
  10. Unexpected Inflation and Public Pensions: The Case of Hungary By András Simonovits
  11. Educational disparities in disability-free life expectancy across Europe: a focus on the East-West gaps from a gender perspective By Donata Stonkute; Angelo Lorenti; Jeroen Spijker
  12. General Equilibrium Analysis of Fiscal Transfers in an Aging Society By Naoki Tani; Yuki Uemura
  13. Ahorrar para avanzar: análisis y recomendaciones sobre la reforma pensional en Colombia By Manuela Restrepo; Camilo José Rios?; Andrés Mauricio Velasco; Andrés Zambrano
  14. Valuing Statistical Life Using Seniors' Medical Spending By Ketcham, Jonathan; Kuminoff, Nicolai; Saha, Nirman

  1. By: Dolls, Mathias (Ifo Institute for Economic Research); Krolage, Carla (Ifo Institute for Economic Research)
    Abstract: This paper analyzes behavioral responses to a 2014 reform in the German public pension system that lowered the full retirement age (FRA) of individuals with a long contribution history by up to two years and framed the new FRA as reference age for retirement. Using administrative data from public pension insurance accounts, we first document a substantial bunching response at the FRA exceeding the control group's bunching by 83%. Second, we show in a difference-in-difference setting that a 1.0 year decrease in the FRA leads to a reduction in the average pension claiming age by 0.3-0.4 years. Treated individuals neither have poorer health nor are more likely to be liquidity-constrained than individuals in the control group. Our results suggest that the strong responses to the reform are driven both by the new FRA serving as a reference point and by financial incentives. Estimated fiscal costs of the reform are at the upper end of the range of previous back-of-theenvelope calculations.
    Keywords: retirement age, early retirement, pension reform
    JEL: H55 J14 J18 J26
    Date: 2023–05
  2. By: Korfhage, Thorben (RWI); Fischer, Björn (ZEW Mannheim)
    Abstract: We estimate a dynamic structural model of labor supply, retirement, and informal care supply, incorporating labor market frictions and the German tax and benefit system. We find that in the absence of Germany's public long-term insurance scheme, informal elderly care has adverse and persistent effects on labor market outcomes and, thus, negatively affects lifetime earnings and future pension benefits. These consequences of caregiving are heterogeneous and depend on age, previous earnings, and institutional regulations. Policy simulations suggest that public long-term care insurance policies are fiscally costly and induce negative labor market effects. But we also show that they can offset the personal costs of caregiving to a large extent and increase welfare for those providing care, especially for low-income individuals.
    Keywords: long-term care, informal care, long-term care insurance, labor supply, retirement, pension benefits, dynamic structural model
    JEL: I18 I38 J14 J22 J26
    Date: 2023–05
  3. By: Jäger, Philipp
    Abstract: I study the impact of old-age assistance on mortality using the introduction of public pensions in the UK in 1909 as a quasi-natural experiment. Exploiting the newly created pension eligibility age through a difference-in-difference as well as an event-time design, I show that elderly mortality in England and Wales declined after the pension was introduced. The estimated mortality decline is economically relevant, more pronounced in counties with a higher share of pensioners and is driven by fewer deaths from infectious as well as non-infectious diseases. An analysis of full-count individual-level census data points to a reduction in residential crowding and retirement, especially from occupations associated with high mortality rates, as likely channels.
    Keywords: Old-age assistance, mortality, retirement
    JEL: H55 I12 J14 J26
    Date: 2023
  4. By: Joshua Montes; Christopher L. Smith
    Abstract: As of October 2022, the retired share of the U.S. population was nearly 1-½ percentage points above its pre-pandemic level (after adjusting for updated population controls to the Current Population Survey), accounting for nearly all of the shortfall in the labor force participation rate. In this paper, we analyze the pandemic-era rise in retirements using a model that accounts for pre-pandemic trends in retirement, the cyclicality of retirement, and other factors. We show that: more than half of the increase in the retired share are “excess retirements†that would likely not have occurred in the absence of the pandemic; excess retirements have been concentrated among cohorts age 65 and older at the start of the pandemic; excess retirements have been largest among the college-educated and whites; and excess retirements reflect in part that worker transitions from the labor force to retirement remain elevated. We also show that failing to account for updated population controls to the Current Population Survey leads to an underestimate of the rise in the retired share over the last few years. We use a cohort-based framework to argue that looking forward, unless the pandemic has permanently affected retirement behavior, excess retirements should eventually fade as those who retired early during the pandemic reach ages when they would have normally retired. Even as excess retirements fade, the retired share will remain well above its pre-pandemic level, reflecting population aging.
    Keywords: Covid-19; Labor force participation; Retirements; Social security
    JEL: J21 J26 J11
    Date: 2022–11–30
  5. By: David Cano Ortiz
    Abstract: Although labor informality prevents half of the working age population in Latin America from contributing to pensions, old-age protection expanded in the last decades thanks to non-contributory social pensions. However, the lowlevels of coverage and benefits in these programs, and the persistently high levels of informality, cast doubt on the future of old-age protection in the region. The purpose of this paper is to assess whether universality and sufficiency of pensions can be achieved through non-contributory schemes, in countries with a large informal sector. For this, I build a theoretical dual-economy model with a formal and an informal sector, two generations, three pension schemes, and a three-fold social response to the old-age protection deficit: informal work by the unprotected old, income sharing by their families, and social pensions by the government. It is shown that with a demand-led formal sector the government can set targets of sufficiency and universality through social pensions. This guarantees to the old the right not to work and reduces the burden on their families
    Keywords: Informal employment, social pensions, pension systems, Latin America, structuralism, dualism, macroeconomic models.
    JEL: E11 H24 I38 J26 J46 O17
    Date: 2022–11
  6. By: Ferrari, Irene (Ca' Foscari University of Venice); Kabátek, Jan (University of Melbourne); Morris, Todd Stuart (ARC Centre of Excellence in Population Ageing Research (CEPAR))
    Abstract: Government policies are encouraging older workers to delay retirement, which may curb younger workers' career advancement. We study a Dutch reform that raised the retirement age by 13 months and nearly tripled employment at age 66. Using monthly linked employer-employee data, we show that affected firms delay and decrease replacement hiring, and coworkers' earnings fall via reductions in hours worked, wages, and promotions. Combined, the hiring and coworker spillovers offset most of the additional hours worked by older workers, disproportionately affect career advancement for younger workers and women, and considerably increase the policy's ratio of welfare costs to fiscal savings.
    Keywords: retirement reform, labor demand, internal labor markets, firms, coworker spillovers
    JEL: H55 J23 J26 J63
    Date: 2023–04
  7. By: Marta Cota
    Abstract: Why do employees’ retirement contributions gradually increase throughout their careers? This paper uses a structural life-cycle model based on household expectations data to explain workers’ retirement contribution decisions. The Michigan Survey of Consumers data shows that young households extrapolate from their recent income realizations and overstate the persistence and volatility of their future income. The structural life-cycle model with extrapolative expectations quantifies the difference in retirement contribution rates compared to rational expectations. Contrary to rational workers, extrapolative workers’ contributions match the data on retirement contributions over the life cycle. Consequently, mandating automatic enrollment yields negligible effects on retirement savings.
    Keywords: extrapolative expectations; forecast errors; illiquid savings; retirement contribution;
    JEL: E21 J26 J32
    Date: 2023–04
  8. By: Artmann, Elisabeth (Institute for Employment Research (IAB), Nuremberg); Fuchs-Schündeln, Nicola (Goethe University Frankfurt); Giupponi, Giulia (Bocconi University)
    Abstract: We provide new evidence of forward-looking labor supply responses to changes in pension wealth. We exploit a 2014 German reform that increased pension wealth for mothers by an average of 4.4% per child born before January 1, 1992. Using administrative data on the universe of working histories, we implement a difference-in-differences design comparing women who had their first child before versus after January 1, 1992. We document significant reductions in labor earnings, driven by intensive margin responses. Our estimates imply that, on average, an extra euro of pension wealth in a given period reduces unconditional labor earnings by 54 cents.
    Keywords: labor supply, social security, pension wealth
    JEL: H55 J22 J26
    Date: 2023–05
  9. By: Werding, Martin; Läpple, Benjamin
    Abstract: Die demographische Alterung tritt in Deutschland aktuell in eine akute Phase, die unter dem derzeit geltenden Recht zu großen finanziellen Anspannungen in den gesetzlichen Sozialversicherungen führt und mittelbar auch Risiken für die Entwicklung des Bundeshaushalts erzeugt. Dies wird im vorliegenden Bericht mit Hilfe von Langfrist-Simulationen für Ausgaben und Einnahmen der Renten-, Kranken-, Pflege- und Arbeitslosenversicherung, einschließlich der Effekte für die jeweils geleisteten Zuschüsse aus dem Bundeshaushalt, genauer untersucht. Einbezogen werden auch Ausgaben für die soziale Sicherung Beamter. Ausgehend von einem Basisszenario werden zunächst einige Sensitivitätsanalysen angestellt und anschließend eine Reihe von Reformszenarien gebildet, die Effekte möglicher Änderungen der rechtlichen Rahmenbedingungen für die Alterssicherung sowie in den Bereichen Gesundheit und Pflege beleuchten. Zentrale Ergebnisse der Simulationen sind Szenarien zur Entwicklung der Beitragssätze der gesetzlichen Sozialversicherungen und des gesamtstaatlichen Haushalts bis 2060 sowie Kennziffern für dessen langfristige Tragfähigkeit. Die wichtigsten Schlussfolgerungen aus den Berechnungen lauten: I. Die demographische Alterung setzt die Finanzen der Sozialversicherungen und den gesamtstaatlichen Haushalt in den nächsten zwanzig Jahren unter wachsenden Druck, der auch anschließend nicht wieder zurückgeht. II. An diesen ungünstigen Perspektiven ändert sich bei realistisch erscheinenden Variationen der zugrundeliegenden Annahmen zur demographischen Entwicklung oder zum Produktivitätswachstum nur wenig. III. Auch bei Umsetzung einzelner Reformschritte bleibt der simulierte Anstieg der betrachteten Ausgaben und der zu ihrer Finanzierung nötigen Beitragssätze weitgehend ungebrochen. IV. Durch eine Kombination aller betrachteten Reformelemente lässt sich der Anstieg der Ausgaben und vor allem der Beitragssätze der Sozialversicherungen spürbar dämpfen, aber immer noch nicht vermeiden.
    Keywords: demographische Alterung, öffentliche Finanzen, Alterssicherung, Gesundheit, Pflege, Arbeitslosigkeit, fiskalische Tragfähigkeit, Reformoptionen, Demographic Ageing, Public Finances, Old-age Provision, Health Care, Long-term Care, Unemployment, Fiscal Sustainability, Options for reform
    JEL: E27 H50 H60 J11
    Date: 2022
  10. By: András Simonovits (Centre for Economic and Regional Studies, BME MI)
    Abstract: Public pensions are indexed to prices or wages or to their combinations; therefore, the impact of inflation on the real value of benefits can often be neglected, especially under indexation to prices. At high and accelerating/decelerating inflation like currently prevailing in Hungary, however, this is not the case. (i) With fast inflation of basic necessities, proportional indexation of benefits in progress devalues the lowest benefits, paying for above-the-average consumption share of these goods. (ii) Annual, lumpy raises in these benefits imply too high intra-year drop in the real value of benefits. (iii) With accelerating inflation, the declining real value of delayed initial benefits may incite immediate retirement. (iv) With unindexed parameter values (like progressivity bending points), the initial benefits' structure unintentionally changes.
    Keywords: inflation, public pensions, indexation, progressivity of initial benefits, delayed retirement
    JEL: E31 H55
    Date: 2023–03
  11. By: Donata Stonkute (Max Planck Institute for Demographic Research, Rostock, Germany); Angelo Lorenti (Max Planck Institute for Demographic Research, Rostock, Germany); Jeroen Spijker
    Abstract: Education plays a crucial role in shaping the health outcomes of adults. This study examines the relationship between educational attainment and health across Europe. Using data from the Survey of Health, Ageing and Retirement in Europe, we estimate educational inequalities in disability-free life expectancy (DFLE) by gender in seven Western European (2004-2019) and three Central and Eastern European (CEE) (2010-2019) countries. We exploit a novel approach that combines the Sullivan method and multivariate life tables to calculate DFLE using SHARE data. We find that educational differences in DFLE favoring the better-educated exist in both CEE and Western European countries, but also that the differences across countries are more pronounced among the low-educated. While the absolute gaps in DFLE between low- and high-educated individuals in CEE and Western European countries are similar, the educational disparities in DFLE impose a more significant burden on the CEE populations due to their overall lower life expectancy. Educational inequalities are larger among women than among men in CEE countries, while the results for Western European countries are mixed. Our findings further highlight the important role of the institutional context in mitigating or exacerbating educational inequalities in health.
    JEL: J1 Z0
    Date: 2023
  12. By: Naoki Tani (Institute of Economic Research, Kyoto University); Yuki Uemura (Graduate School of Economics, Kyoto University)
    Abstract: We analyze fiscal transfer policies using a quantitative spatial general equilibrium model given heterogeneous local productivities and amenities, migration of young and elderly population, and inter-regional trade. We confirm that fiscal transfers improve welfare by reducing congestion in urban areas and increasing public services and real wages in rural areas. Contrary to the literature, introducing mobility of elderly population indicates possibility of optimal transfers that enable the central government to accomplish welfare gains without sacrificing national output. We calibrate the model to the Japanese economy and conduct some counterfactual simulations. The results show that Japans’ central government’s current fiscal transfers improve welfare of young and old population by 17.5% and 20.4%, respectively, compared with a zero-transfer case. However, they reduce national output by 12.5%. If the central government makes the transfers at a uniform rate across regions, it improves welfare of working and old population by 20.3% and 27.2%, respectively, compared with the zero-transfer case, without reducing the national output.
    Keywords: Economic geography; Place-based policies; Population aging; Agglomeration force
    JEL: H20 H77 R12 R13
    Date: 2023–05
  13. By: Manuela Restrepo; Camilo José Rios?; Andrés Mauricio Velasco; Andrés Zambrano
    Abstract: El 22 de marzo de 2023 el Gobierno Nacional radicó el Proyecto de Ley ¿Cambio por la Vejez¿, el cual busca reformar el sistema pensional colombiano y presenta un nuevo esquema de protección a la vejez. La propuesta considera un esquema compuesto por cuatro pilares; el solidario, el semicontributivo, el contributivo y el de ahorro voluntario. En este documento se presenta un resumen de la reforma pensional radicada, seguido por un análisis de sus implicaciones sobre la sostenibilidad fiscal y la estabilidad macroeconómica. Con base a este análisis, se recomienda la disminución del umbral de cotizaciones a Colpensiones a un salario mínimo para disminuir los subsidios regresivos y aumentar el ahorro nacional. También se sugiere aumentar el ahorro de todas las contribuciones hechas por los nuevos cotizantes a Colpensiones para mantener la sostenibilidad del sistema por más tiempo y no permitir la desacumulación de ese ahorro para financiar otros pilares. Dicho fondo de ahorro debe contar con un gobierno institucional y un estatuto de inversiones que le permita maximizar su rentabilidad, pues mayores rendimientos reducen el impacto fiscal del sistema.
    Keywords: Reforma, pensiones, pilares, impacto fiscal, ahorro nacional
    JEL: H55 H62 E62
    Date: 2023–05–19
  14. By: Ketcham, Jonathan; Kuminoff, Nicolai; Saha, Nirman
    Abstract: This study provides the first revealed preference evidence on the value of statistical life (VSL) for US seniors aged 67–97 from the rates at which they choose to consume medical care relative to other private goods and by the effects of their choices on their survival probabilities. These effects are estimated from individuals’ survey responses linked with their Medicare records. Instrumental variables estimators provide robust evidence that the mean VSL is below $1 million and that it decreases with age, and, given age, increases with income, education, and health and is higher for women and people who never smoked.
    Date: 2023–05–10

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