nep-age New Economics Papers
on Economics of Ageing
Issue of 2024‒03‒11
eleven papers chosen by
Claudia Villosio, LABORatorio R. Revelli

  1. What Is the Insurance Value of Social Security by Race and Socioeconomic Status? By Karolos Arapakis; Gal Wettstein; Yimeng Yin
  2. Long Term Care Risk For Couples and Singles By Elena Capatina; Gary Hansen; Minchung Hsu
  3. The Effect of Migration on Careers of Natives: Evidence from Long-term Care By Peter Haan; Izabela Wnuk
  4. Pension Liquidity Risk By Kristy Jansen; Sven Klingler; Angelo Ranaldo; Patty Duijm
  5. 'Egalitarian pooling and sharing of longevity risk', a.k.a. 'The many ways to skin a tontine cat' By Jan L. M. Dhaene; Moshe A. Milevsky
  6. Are Older Workers Good for Business? By Laura D. Quinby; Gal Wettstein; James Giles
  7. Does Temporary Disability Insurance Reduce Older Workers’ Reliance on Social Security Disability Insurance? By Siyan Liu; Laura D. Quinby; James Giles
  8. How Much Do People Value Annuities and Their Added Features? By Karolos Arapakis; Gal Wettstein
  9. The levels and trends of cancer incidence in the elderly population at national and sub‐national scales in Iran from 1990 to 2016 By Shokri Varniab, Zahra; Saeedi Moghaddam, Sahar; Pourabhari Langroudi, Ashkan; Azadnajafabad, Sina; Mortazavi, Seyede Salehe; Sheidaei, Ali; Gohari, Kimiya; Farzi, Yosef; Shirzad Moghaddam, Zeinab; Sohrabi, Hanye; Shati, Mohsen
  10. Shared Households as a Safety Net for Older Adults By Hope Harvey; Kristin L. Perkins

  1. By: Karolos Arapakis; Gal Wettstein; Yimeng Yin
    Abstract: Social Security’s design is known to help Black individuals and those with lower socioeconomic status due to the progressive benefit formula, but this effect is partially offset by the shorter life expectancies of these groups. However, valuing Old-Age and Survivors Insurance (OASI) solely on expected benefits neglects the program’s longevity insurance value, which favors individuals facing greater uncertainty over their lifespans. This paper uses a structural model to measure the value of the program’s longevity insurance for stylized households that differ by race, education, and marital status. Wealth equivalence calculations indicate that all stylized households value OASI at least as much as their lifetime OASI tax contributions. The results also indicate that Black households derive more longevity insurance value from OASI than their White counterparts. Hence, OASI increases racial equity in retirement even more than suggested by measures based on expected benefits alone.
    Date: 2023–09
  2. By: Elena Capatina; Gary Hansen; Minchung Hsu
    Abstract: This paper compares the impact of long term care (LTC) risk on single and married households and studies the roles played by informal care (IC), consumption sharing within households, and Medicaid in insuring this risk. We develop a life-cycle model where individuals face survival and health risk, including the possibility of becoming highly disabled and needing LTC. Households are heterogeneous in various important dimensions including education, productivity, and the age difference between spouses. Health evolves stochastically. Agents make consumption-savings decisions in a framework featuring an LTC statedependent utility function. We find that household expenditures increase significantly when LTC becomes necessary, but married individuals are well insured against LTC risk due to IC. However, they still hold considerable assets due to the concern for the spouse who might become a widow/widower and can expect much higher LTC costs. IC significantly reduces precautionary savings for middle and high income groups, but interestingly, it encourages asset accumulation among low income groups because it reduces the probability of meanstested Medicaid LTC.
    Keywords: Long Term Care, Household Risk, Precautionary Savings, Medicaid
    JEL: D91 E21 H31 I10 I38 J14
    Date: 2024–02
  3. By: Peter Haan; Izabela Wnuk
    Abstract: This paper examines the effect of increasing foreign staffing on the labor market outcomes of native workers in the German long-term care sector. Using administrative social security data covering the universe of long-term care workers and policy-induced exogenous variation, we find that increased foreign staffing reduces labor shortages but has diverging implications for the careers of native workers in the sector. While it causes a transition of those currently employed to jobs with better working conditions, higher wages, and non-manual tasks, it simultaneously diminishes re-employment prospects for the unemployed natives with LTC experience.
    Keywords: Immigration, shift-share instrument, long-term care, EU Enlargement
    JEL: J61 I11
    Date: 2024
  4. By: Kristy Jansen; Sven Klingler; Angelo Ranaldo; Patty Duijm
    Abstract: Pension funds rely on interest rate swaps to hedge the interest rate risk arising from their liabilities. Analyzing unique data on Dutch pension funds, we show that this hedging behavior exposes pension funds to liquidity risk due to margin calls, which can be as large as 15% of their total assets. Our analysis uncovers three key findings: (i) pension funds with tighter regulatory constraints use swaps more aggressively; (ii) in response to rising interest rates, triggering margin calls, pension funds predominantly sell safe and short-term government bonds; (iii) we demonstrate that this procyclical selling adversely affects the prices of these bonds.
    Keywords: Pension funds; fixed income; interest rate swaps; liability hedging; liquidity risk; margin calls; price impact
    JEL: E43 G12 G18
    Date: 2024–02
  5. By: Jan L. M. Dhaene; Moshe A. Milevsky
    Abstract: There is little disagreement among insurance actuaries and financial economists about the societal benefits of longevity-risk pooling in the form of life annuities, defined benefit pensions, self-annuitization funds, and even tontine schemes. Indeed, the discounted value or cost of providing an income for life is lower -- in other words, the amount of upfront capital required to generate a similar income stream with the same level of statistical safety is lower -- when participants pool their financial resources versus going it alone. Moreover, when participants' financial circumstances and lifespans are homogenous, there is consensus on how to share the "winnings" among survivors, namely by distributing them equally among survivors, a.k.a. a uniform rule. Alas, what is lesser-known and much more problematic is allocating the winnings in such a pool when participants differ in wealth (contributions) and health (longevity), especially when the pools are relatively small in size. The same problems arise when viewed from the dual perspective of decentralized risk sharing (DRS). The positive correlation between health and income and the fact that wealthier participants are likely to live longer is a growing concern among pension and retirement policymakers. With that motivation in mind, this paper offers a modelling framework for distributing longevity-risk pools' income and benefits (or tontine winnings) when participants are heterogeneous. Similar to the nascent literature on decentralized risk sharing, there are several equally plausible arrangements for sharing benefits (a.k.a. "skinning the cat") among survivors. Moreover, the selected rule depends on the extent of social cohesion within the longevity risk pool, ranging from solidarity and altruism to pure individualism. In sum, actuarial science cannot really offer or guarantee uniqueness, only a methodology.
    Date: 2024–02
  6. By: Laura D. Quinby; Gal Wettstein; James Giles
    Abstract: The U.S. workforce is aging, which has raised concerns about the implications of older workers for businesses and the economy. However, little research has been conducted on the quantitative value of older workers in recent years. This paper attempts to fill that gap by linking employee and employer data from the U.S. Census Bureau’s Longitudinal Employer-Household Dynamics, Longitudinal Business Database, and Business Register. The analysis finds that in general, older workers are as productive as younger workers, however they do earn higher wages. Furthermore, the relationship between the share of older workers, productivity, and profitability varies substantially by industry.
    Date: 2023–11
  7. By: Siyan Liu; Laura D. Quinby; James Giles
    Abstract: Temporary Disability Insurance (TDI) provides workers with wage replacement while they recover from a serious medical condition. Proponents of a national paid leave program argue that these benefits allow workers to adjust to health shocks and return to the workforce, reducing reliance on Social Security Disability Insurance (DI). Yet, TDI could also encourage DI application by providing income during the lengthy qualification period. This study uses the 1992-2020 Health and Retirement Study to evaluate how access to TDI benefits affects the likelihood that older workers end up on DI after a work-limiting health shock. Specifically, it compares the experience of workers in states with mandated TDI benefits to those living in states without such policies.
    Date: 2023–09
  8. By: Karolos Arapakis; Gal Wettstein
    Abstract: A longstanding puzzle in the economics of insurance, household finance, and public policy is why so few individuals annuitize their wealth. This paper describes results from a recent survey of people with investable assets over $100, 000 that included a randomized control trial module eliciting individuals’ valuations for a simple immediate annuity, as well as whether they are willing to pay more for annuities with survivor benefits or with a liquidity clause allowing them to withdraw the remaining premium. The major result suggests that half of those surveyed want to annuitize at prevailing market annuity prices, a much higher share than the 12 percent of this group who actually do buy annuities. In terms of annuity features, individuals are unwilling to pay more for a death benefit or a liquidity option, underscoring that it is not supposedly aversive features of annuities preventing more widespread adoption. Moreover, the analysis calibrates a lifecycle model using the Health and Retirement Study. With reasonable preference parameters, the model suggests that annuitization rates for individuals with investable assets over $100, 000 should be even higher than 50 percent, further suggesting that the wedge between the 50 percent that want to annuitize and the 12 percent that do is not due to preferences or economic circumstances. The results find support for “channel factors†– difficulties associated with actually purchasing an annuity – as a major impediment to annuitization.
    Date: 2023–11
  9. By: Shokri Varniab, Zahra; Saeedi Moghaddam, Sahar; Pourabhari Langroudi, Ashkan; Azadnajafabad, Sina; Mortazavi, Seyede Salehe; Sheidaei, Ali; Gohari, Kimiya; Farzi, Yosef; Shirzad Moghaddam, Zeinab; Sohrabi, Hanye; Shati, Mohsen
    Abstract: Cancer is most commonly associated with aging. It is necessary to gain a better understanding of cancer's trend and distribution among elderlies and provide comprehensive cancer care for this population. The aim of the current study was to show the trends in cancer incidence focusing on the population aged 60+ from 1990 to 2016 in Iran. We used the dataset of the Iran Cancer Registry to estimate cancer incidences by sex, age, province, and year. In order to account for incomplete data we used a two‐stage spatiotemporal model along with random intercept mixed effect models. We calculated annual age‐standardized incidence rates (ASIRs) for age groups 60+ and 5‐interval age groups. There was an increasing trend of 25.3% to 936.9% (95% uncertainty interval: 769.6–1141.8) in ASIR in the elderly in 2016. ASIR of all cancers were 889.7 (731.3–1083.6) in women and 988.1 (811.1–1205) in men in 2016, per 100 000 respectively, which had an increasing trend comparing 1990. Skin, breast, and stomach cancers in women and prostate, skin, and stomach cancers in men were the most common types in 2016. All the most incident cancer subtypes underwent an increasing trend in both sexes, except for the bladder, esophageal, and skin cancers which almost had a similar level in 1990 and 2016. Most provinces had an increasing trend in ASIR in all cancers combined from 1990 to 2016 except Zanjan with a decreasing trend. Regarding the persistent increasing trend of most elderly cancers' incidence, this is crucial for policymakers to establish preventive plans, determine proper resource allocation, and develop specific treatments for elderly cancer patients.
    Keywords: elderly, epidemiology, geriatrics, incidence, neoplasms
    Date: 2024
  10. By: Hope Harvey; Kristin L. Perkins
    Abstract: With a record number of older adults facing housing affordability challenges, shared households may provide an important private housing safety net if other household members contribute to housing costs. Using data from the Survey of Income and Program Participation, we describe the prevalence and characteristics of older adults’ shared households (defined as those that include any adult besides the householder and householder’s romantic partner). This includes intergenerational households and co-residence with other extended family and non-kin. We explore the safety net function of shared households by examining whether and how much older adults contribute towards shared housing costs, and how this varies across household types. These descriptive analyses improve our understanding of the composition and potential financial impacts of shared households for older adults.
    Date: 2023–10
  11. By: Superintendencia de Pensiones; Dirección de Presupuestos del Ministerio de Hacienda (Studies Division, Chilean Pension Supervisor)
    Abstract: En este estudio se analizan los dos indicadores en forma conjunta permite realizar una evaluación más integral del sistema de pensiones al menos en dos de sus objetivos: suavizar consumo al pasar de vida activa a vida pasiva y de aliviar pobreza en la segunda etapa. En efecto, el informe presenta los indicadores tanto para el pilar contributivo de capitalización individual como considerando la Pensión Garantizada Universal (PGU) que paga el Estado a todas las personas que cumplen con los requisitos de acceso. A su vez, se analiza la proyección de las tasas de reemplazo hacia el futuro bajo distintos escenarios de la distribución de la cotización adicional del 6%. Uno de los factores que se analiza es que estos escenarios sean fiscalmente neutros; es decir que no impliquen recursos del Estado más allá de acelerar la transición y que estos sean pagados de vuelta al Fisco.
    Keywords: Tasas de reemplazo, Sistema de pensiones de contribución definida, Mercado laboral, empleo
    Date: 2024–01

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