nep-age New Economics Papers
on Economics of Ageing
Issue of 2023‒11‒13
ten papers chosen by
Claudia Villosio, LABORatorio R. Revelli

  1. Sustainability of pension reforms: An EU-wide political stress By Cetin, Sefane; Hindriks, Jean
  2. Automatic Adjustment Mechanisms in Public Pension Schemes to Address Population Ageing and Socioeconomic Disparities in Longevity By Diakite, Keivan; Devolder, Pierre
  3. Graying and staying on the job: The welfare implications of employment protection for older workers By Morries, Todd; Dostie, Benoît
  4. Gender wage and longevity gaps and the design of retirement systems By Francesca Barigozzi; Helmuth Cremer; Jean-Marie Lozachmeur
  5. Understanding international measures of health spending: Age-adjusting expenditure on health By David Morgan; Michael Mueller
  6. Los efectos presupuestarios de la reforma de pensiones: un balance provisional By Ángel de la Fuente
  7. The trouble with inactivity By Stephen Machin; Jonathan Wadsworth
  8. Age-specific income inequality and happiness over the life cycle By d'Albis, Hippolyte; Mayaux, Damien; Senik, Claudia
  9. Are Senior Entrepreneurs Happier than Who? The Role of Income and Health By Fritsch, Michael; Sorgner, Alina; Wyrwich, Michael
  10. Physical Decline Rates: Men versus Women By Ray C. Fair

  1. By: Cetin, Sefane (Université catholique de Louvain, LIDAM/CORE, Belgium); Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: Many countries have adopted various pension reforms to deal with aging population. Those reforms involve some balance between ”refinancing” (contribution increase) and ”retrenchment” (benefit cut). The question we address is whether policymakers have the future capacity to sustain the legislated pension reforms in the EU given the growing influence of the elderly in the democratic process. To answer this question, we draw on the 2021 Economic Policy Committee (EPC) projections of pension benefit rates that we compare with the policy adjustments over the amount of refinancing and benefit cut arising from continuously negotiated reforms over time between the successive cohorts of workers and retirees. We compute the optimal bargaining trajectory of benefit and contribution rates that match the aging population. We then use the ”democratic gap” as a political stress test. This democratic gap measures how the implicit bargaining power that rationalizes the projected pension benefits deviates from the population shares. We complement the analysis with the ”benefit gap” that measures how the projected pension benefits deviate from the bargaining outcome when bargaining power evolves according to population aging.
    Keywords: Pension reform ; Aging ; Bargaining ; Sustainability ; Stress test
    JEL: D63 H55 J18
    Date: 2023–05–31
  2. By: Diakite, Keivan (Université catholique de Louvain, LIDAM/ISBA, Belgium); Devolder, Pierre (Université catholique de Louvain, LIDAM/ISBA, Belgium)
    Abstract: Many pension systems require and continue to need change to maintain longterm financial sustainability. Most developed countries’ policy-makers have been pushed to reform their pension systems in order to preserve or re-establish financial sustainability. As longevity heterogeneity is frequently disregarded in the policy chosen, the pursuit of financial sustainability is done at the expense of intra-generational actuarial fairness. We propose a pension system management system based on two adaptation mechanisms: The first dynamic mechanism is integrated directly into the pension formula and corrects the heterogeneity of longevity when it exists between the agents of the pension scheme. A steering mechanism for both the contribution rate and the mean benefit ratio respects Musgrave’s rule, which makes it possible to distribute the demographic risk between working people and retirees. In order to capture both effects and incorporate a mortality component into the pension formula, we model longevity heterogeneity and ageing in a pension based on historical data.
    Keywords: Automatic Adjustment Mechanisms ; Longevity heterogeneity ; Musgrave ; pay-as-you-go ; Pension design
    Date: 2023–05–31
  3. By: Morries, Todd; Dostie, Benoît
    Abstract: We study the welfare implications of employment protection for older workers, exploiting recent bans on mandatory retirement across Canadian provinces. Using linked employeremployee tax data, we show that the bans cause large and similar reductions in job separation rates and retirement hazards at age 65, with further reductions at higher ages. The effects vary substantially across industries and firms, and around two-fifths of the adjustments occur between ban announcement and implementation dates. We find no evidence that the demand for older workers falls, but the welfare effects are mediated by spillovers on savings behavior, workplace injuries, and spousal retirement timing.
    Keywords: employment protection, retirement, welfare, active and passive savings responses, health effects, spousal spillovers
    JEL: J26 J78 H55
    Date: 2023
  4. By: Francesca Barigozzi (University of Bologna/Università di Bologna); Helmuth Cremer (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Jean-Marie Lozachmeur (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We study the design of pension benefits for male and female workers. Women live longer than men but have a lower wage. Individuals can be single or live in couples who pool their incomes. Social welfare is utilitarian but an increasing concave transformation of individuals' lifetime utilities introduces the concern for redistribution across individuals with different lifespans. We derive the optimal direction of redistribution and show how it is affected by a gender neutrality rule. With singles only, a simple utilitarian solution implies redistribution from males to females. When the transformation is sufficiently concave redistribution may or may not be reversed. With couples only, the ranking of gender retirement ages is always reversed when the transformation is sufficiently concave. Under gender neutrality pension schemes must be self-selecting. Gender neutrality implies distortions of retirement decisions, limits redistribution and, negatively affects the group towards which redistribution is targeted. With couples, a first best that implies a lower retirement age for females can be implemented by a gender-neutral system. Otherwise, gender neutrality implies equal retirement ages and restricts the possibility to compensate the shorter-lived individuals. Calibrated simulations show that when singles and couples coexist, gender neutrality substantially limits redistribution in favor of single women and fully prevents redistribution in favor of male spouses.
    Keywords: Gender wage gap, Gender gap in longevity, Retirement systems
    Date: 2023–05
  5. By: David Morgan; Michael Mueller
    Abstract: Assessing health system performance over time or across countries often means comparing populations with very different characteristics, including age structure. The share of the population aged 65 years and over ranges from less than 1 in 10 in some of the Latin American countries of the OECD to almost 3 in 10 in Japan. At the same time, populations are aging rapidly - on average across the OECD, there are 20% more people over 65 since 2015. Since risk of illness and ill-health generally increases with age, a population with an older demographic structure can expect higher mortality rates, greater incidence and prevalence of certain diseases, and thus higher demands for healthcare and, by consequence, higher spending on health. This working paper argues that the level of health spending depends not only on the size of the population (among other factors), but also on the demographic structure of the population. The paper reviews the international literature on age-adjusting health spending, and examines three methods of age-adjustment to report and compare health expenditure data between OECD countries and over time.
    Date: 2023–10–31
  6. By: Ángel de la Fuente
    Abstract: En esta nota se resumen las principales medidas incluidas en el reciente acuerdo para cerrar la reforma del sistema público de pensiones y se cuantifican sus efectos sobre los ingresos y gastos del sistema. Incorporando también estimaciones sobre el impacto presupuestario de otros aspectos de la reforma, parece claro que el déficit básico del sistema (antes de transferencias del Estado), que ya es significativo en la actualidad, aumentará rápidamente durante las próximas décadas, lo que exigirá cuantiosas y crecientes aportaciones de recursos generales que podrían dejar poco margen para otras prioridades.
    Date: 2023–03
  7. By: Stephen Machin; Jonathan Wadsworth
    Abstract: Elevated concerns over the consequences of recent rises in the UK economic inactivity rate for growth, wages and prices have prominently featured in recent public debate about the labour market and the economy. This paper documents the path of economic inactivity over time, disaggregated along several dimensions in an attempt to evaluate whether or not rising inactivity does indeed have consequences for growth and wages. First of all it is important to highlight that, over the longer run, inactivity is still quite a lot lower now than it has been for some time. This makes the recent rise in inactivity looks more like a cyclical blip, rather than a long-term trend. Second, spatial disparities in inactivity growth are not positively correlated with wage growth. If anything, rising inactivity is associated with lower wage growth. Thirdly, the inactivity rise has been partially offset by growth in employment of workers above statutory retirement age. Consequently, the elevated concern of sizable negative consequences of the recent rise in inactivity looks to be somewhat misplaced. Moreover, the inactivity shifts effects are unequally distributed, an important aspect which appears overlooked in the discussion, especially with regard to policy. Inactivity is strongly concentrated on certain groups of the population and is linked to both aggregate and local economic performance, falling in good times, and rising in bad. As such, policy going forward needs to try to avoid spending time on issues that may resolve themselves as the economy recovers. This means the prime focus should be on what has been an issue for quite some time now, namely the persistently low labour force participation among older, less skilled workers with illness in economically disadvantaged areas.
    Keywords: UK economic inactivity rate, growth, wages, retirement age
    Date: 2023–07–25
  8. By: d'Albis, Hippolyte; Mayaux, Damien; Senik, Claudia
    Abstract: One of the main puzzles uncovered by the happiness literature is the U-shaped relationship between age and self-declared happiness, with a mid-life nadir, around 50-55. In this paper, we show that mid-life is also the moment when within-age income inequality is at its most. We also show that greater within-age income inequality comes with lower life satisfaction. Moreover, this negative impact is stronger for those whose income is below the median level in their age-group. Hence, relative income concerns seem to be a factor of the trough in the age-happiness curve.
    Keywords: Life satisfaction, life cycle, age-specific income inequality, I31, H24
    Date: 2023–10
  9. By: Fritsch, Michael (University of Jena); Sorgner, Alina (John Cabot University); Wyrwich, Michael (University of Groningen)
    Abstract: We propose an extension of the standard occupational choice model to analyze the life satisfaction of senior entrepreneurs as compared to paid employees and particularly retirees in Germany. The analysis identifies income and health status as main factors that shape the relationship between occupational status and life satisfaction. Senior entrepreneurs enjoy higher levels of life satisfaction than retirees and senior paid employees. This higher life satisfaction is mainly due to their higher income. Physical and mental health play a crucial role in determining both an individual's occupational status and their overall life satisfaction. We find that senior self-employed report to be healthier compared to other groups of elderly individuals. However, when controlling for health, retirees exhibit an even higher level of life satisfaction compared to their self-employed counterparts. Heterogeneity analysis of various types of senior entrepreneurs and senior paid employees confirms this general pattern. In addition, we find some evidence indicating that senior entrepreneurs may compromise their leisure time, a main asset of retired individuals. Implications for research, policy, and practitioners are discussed.
    Keywords: senior entrepreneurship, health conditions, well‐being, life satisfaction, age
    JEL: L26 I31 J10 D91
    Date: 2023–10
  10. By: Ray C. Fair (Yale University)
    Abstract: This paper uses world records by age in running, swimming, and rowing to estimate a biological frontier of decline rates for both men and women. Decline rates are assumed to be linear in percent terms up to a certain age and then quadratic after that, where the transition age is estimated. For both men and women decline rates are smallest for rowing, followed by swimming and then running. Decline rates for women are roughly the same as those for men for the short swimming events. They are slightly larger for the longer swimming events and for the rowing events. They are largest for running, more so for the longer events than the shorter ones. The age at which there is a 50 percent decline from age 40 ranges from 70 to 90, an optimistic result for humans. The estimated decline rates can be used by non physically elite people under the assumption that their decline rates in percentage terms are similar to those of the elite athletes.
    Date: 2023–10–26

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