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on Labour Economics |
| By: | Dan A. Black (Syracuse University); Xiaoli Liang (Syracuse University) |
| Abstract: | In this paper, we explore the effect of local labor market conditions on the labor supply decisions of older workers. We use three different sources of variation: shocks to the US steel industry, shocks to Appalachian coal mining, and shocks to US manufacturing. While each experiment uses different methodology, the three tell a remarkably consistent story: the retirement decisions of Americans over the last thirty-five years have been affected by the performance of local labor markets. First, using variation induced by the decline in the US steel industry, we find that a 10 percent reduction in earnings resulting from the decline of the primary metals industry resulted in a 1.5 percent increase in the participation and expenditures of the Old Age program. Second, using variation in coal prices induced by oil shocks, we find that a 10 percent increase in earnings from the coal industry reduced participation about 0.9 percent and decreases expenditures about 1.2 percent. Finally, looking at variation induced by the concentration of manufacturing employment, we use micro data to examine the age and education levels of those who retired. |
| Keywords: | labor market, retirement |
| JEL: | J14 J26 J45 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2005-08&r=lab |
| By: | John B. Williamson (Boston College) |
| Abstract: | The structure of pension systems varies by two key dimensions: the way in which benefits are determined and the way in which they are financed. The determination of benefits follows one of two main methods: (1) the defined benefit approach, in which benefits are based on a formula that relies on how much workers make and how long they work; and (2) the defined contribution approach, in which benefits are typically determined by the amount contributed and the accumulated earnings on those contributions. Pension financing also follows one of two general approaches: (1) pay-as-you-go, with contributions from current workers and their employers used to pay the pensions of current retirees; and (2) funded, with contributions invested in individual accounts that are used by workers to pay for their own retirement benefits. Today most national pension systems are based in large part on the defined benefit model and are financed on a pay-as-you-go basis. But as many of these schemes have matured and some of their limitations have emerged, policymakers have begun to search for alternatives. One alternative that has received a great deal of attention since the early 1980s is the funded defined contribution model of individual accounts. Another alternative emerged in the mid-1990s: the notional defined contribution (NDC) model. It also features individual accounts, but they are financed on a pay-as-you-go basis. This issue in brief draws on evidence from six countries that have introduced NDC schemes: Sweden (1994), Italy (1995), Latvia (1996), the Kyrgyz Republic (1997), Poland (1999), and Mongolia (2000). It describes the NDC model, reviews its major strengths and limitations, and assesses how widespread it may become in the future. |
| Keywords: | pension systems, benefits, defined benefit, defined contribution |
| JEL: | H55 J26 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib24&r=lab |
| By: | Joanna N. Lahey (National Bureau of Economic Research) |
| Abstract: | As the leading edge of the baby boom generation approaches 60, growing evidence suggests that many may want to work beyond traditional retirement ages. Longer work lives may be desirable for a combination of reasons, including financial need, robust health, and the desire to stay active, productive, and engaged. Financial need may be the single most important incentive to work longer. Even at today's level of Social Security benefits, many older Americans need to work as they have little income from other sources. Indeed, one-third of those over 65 rely on Social Security for virtually all of their income. The prescribed solution was to radically transform the traditional pay-as-you-go structure to a system based on personal retirement accounts. The Box on page two describes the main features of the current system. Nearly 25 years after the reform, it is possible to assess the Chilean experience. A disproportionate share of these Social Security dependent beneficiaries are women. In addition, as baby boomers begin to retire, the need for income will become even more important for two reasons. First, Social Security benefits are expected to replace a smaller share of individuals' pre-retirement income due to changes under current law, such as the rise in the full benefits retirement age, and the need to solve the program's long-term financial shortfall. Second, 401(k) plans have replaced traditional defined benefit plans as the dominant pension vehicle, and benefits from 401(k)s are much less certain than those from traditional plans. Fortunately, older Americans are now more capable of working at later ages than in years past. Several studies suggest that today's 70 year olds are comparable in health and mental function to 65 year olds from 30 years ago. In addition to the monetary rewards, work also offers health and psychological benefits. Working in later ages may contribute to an older person's mental acuity and provide a sense of usefulness. Indeed, when surveyed, many people say they wish to continue working at least part time into later ages as a bridge to retirement. |
| Keywords: | retirement, age discrimination, baby boomers |
| JEL: | H55 J14 J71 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib33&r=lab |
| By: | Alicia H. Munnell (Center for Retirement Research at Boston College); Robert K. Triest (Federal Reserve Bank of Boston); Natalia A. Jivan (Center for Retirement Research at Boston College) |
| Abstract: | This paper uses the first six waves of the Health and Retirement Study to investigate the impact of pensions on expected retirement age, on the probability of being retired in each wave given employment in the previous wave, and on the probability of retiring earlier than planned. Pension coverage per se and the type of pension are important in each case. Pension wealth reduces the expected retirement age by 0.6 year, and the incentives in defined benefit plans lower the expected age by another 1.1 years. Pension wealth increases the probability of retiring in a given wave, and pension accruals reduce the probability. Other characteristics of defined benefit plans, as measured by the pension dummy, further raise the probability of being retired. Finally, with regard to the probability of retiring earlier than planned, a change in defined contribution wealth increases the probability, but pension coverage per se reduces it. That is, those with pensions tend to be more accurate planners than those without. |
| Keywords: | retirement, pension, defined benefit, defined contribution |
| JEL: | J26 D91 |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2004-27&r=lab |
| By: | Alicia H. Munnell (Center for Retirement Research at Boston College); Jamie Lee (Center for Retirement Research at Boston College) |
| Abstract: | Over the last 20 years, pension coverage has shifted from defined benefit plans, where benefits are based on years of service and final salary and generally paid as an annuity, to 401(k) plans, where individual and employer contributions and earnings on those contributions are awarded as a lump sum at retirement. Although the majority of workers lucky enough to have a pension will rely on a 401(k) plan, these plans are coming up short. The main reason is that 401(k) plans shift all the risks and decision-making from the employer to the individual, and individuals make mistakes all along the way. One of the most serious mistakes occurs when young people cash out small pension accounts upon changing jobs. The regulation issued today from the U.S. Department of Labor with regard to provisions in the 2001 Economic Growth and Tax Relief Reconciliation Act should help solve the “cash out” problem. |
| Keywords: | pensions, 401(k), shift |
| JEL: | D91 J33 J26 |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:crr:jusfac:jtf_12&r=lab |
| By: | David Gray |
| Abstract: | <P>Decentralization looms large in any analysis of Canadian economic and social policy. This trend has been especially pronounced in the area of unemployment insurance (UI) and social assistance (SA) programmes. Provinces now manage SA programmes and retain 100% of any cost savings that they achieve, while the Federal government maintains full responsibility for the passive component of UI. Under a series of provincial-federal Labour Market Development Agreements, since 1997 most of Canada's provinces have taken over administrative responsibility for the employment benefit and support measures (EBSMs) targeted on UI beneficiaries. A number of articles have examined the implications for provincial SA systems of restrictive measures in the UI programme. This paper examines the possibility that provinces may shift actual and potential SA clients onto the insurance system (now called employment insurance, EI). It concludes that within the context of EBSMs, any cost-shifting of this ...</P> <P>La décentralisation figure en tête de toute analyse de la politique économique et sociale canadienne. Cette tendance n'est nulle part plus prononcée que dans le domaine des programmes d'assurance-chômage (AC) et d'aide sociale. Les provinces maintenant gèrent les programmes d'aide sociale et récupèrent 100% de toute économie obtenue, alors que le gouvernement fédéral conserve la pleine responsabilité pour le volet passif de l'AC. Aux termes d'une série d'Ententes sur le développement du marché du travail (EDMT), depuis 1997 la plupart des provinces canadiennes ont la responsabilité de gestion pour les Prestations d'emploi et mesures de soutien (PEMS) ciblées sur les allocataires de l'AC. Il existe quelques études portant sur les conséquences des mesures restrictives appliquées au programme d'AC pour les programmes provinciaux d'aide sociale. Cet article étudie la possibilité que les provinces fassent basculer sur le système d'assurance (nommé maintenant l'assurance-emploi, AE) les ...</P> |
| JEL: | J64 J65 J68 |
| Date: | 2003–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:oec:elsaab:14-en&r=lab |
| By: | Peter Gottschalk (Boston college); Minh Huynh (Social Security Administration) |
| Abstract: | This study is motivated by the well-documented increase in wage inequality during the 1980s and the continued high levels of inequality during the 1990s. Specifically, we examine changes in the distribution of long-run earnings and changes in economic mobility for recent cohorts. These cohorts, who either entered retirement in the 1990s or are nearing retirement, experienced very different labor market conditions during their working lives than did earlier cohorts. Economic growth led to higher mean earnings for recent cohorts but the distribution of yearly earnings became less equal. As a result of these changes, the average worker nearing retirement had higher long-run earnings than members of previous cohorts. This, however, need not have translated into higher long-run earnings across the board. Those at the bottom of the distribution of long-run earnings might actually have had lower accumulated earnings than previous cohorts if the gains from growth were more than offset by the increase in inequality of earnings during the 1980s. If the accumulated earnings of those at the bottom of the distribution fell, then this could have had an impact both on decisions about whether to continue to work after the period of normal retirement and on Social Security benefits. The second, and related, policy question is whether mobility has increased. If mobility has increased, then this may partially offset the impact of the increase in earnings inequality. Outcomes may be less equal, but there is less chance of being stuck with a bad outcome. Our ability to measure earnings mobility for five cohorts spanning a twenty-five-year period allows us to address this important question. |
| Keywords: | distribution, retirement, earnings, mobility |
| JEL: | D31 J60 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2005-02&r=lab |
| By: | Keith A. Bender (University of Wisconsin-Milwaukee) |
| Abstract: | While previous economic research focuses on the financial well-being of retirees, this paper examines the determinants of overall well-being of retirees. Using data from the 2000 Health and Retirement Study, the strongest predictor of retirement well-being is the reason for entering retirement. If individuals were “forced” to retire, their well-being is significantly lower than those who chose to retire. This indicates the importance of expectations on retirement satisfaction. Additionally, health, current income, and comparison retirement income have important roles in determining overall well-being. |
| Keywords: | retirees, well-being, satisfaction |
| JEL: | J26 D31 |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2004-24&r=lab |
| By: | Gary V. Engelhardt (Syracuse University); Anil Kumar (Center for Policy Research) |
| Abstract: | This paper examines the potential impact of government matching contributions on personal-account participation in the President's Commission on Strengthening Social Security's Model 3 for Social Security reform. Given the government's choice of four plan-design parameters, the magnitude of the match is determined solely by the differential return personal-account assets receive above the notional return, referred to as the "personal-account premium," akin to the equity premium. The impact of matching on personal-account participation is simulated for older workers (ages 40 to 65) in the first wave of the Health and Retirement Study (HRS) using empirical estimates from a structural model of the impact of employer matching on participation in corporate 401(k) plans. For a personal-account premium of five percentage points, which implies a match rate of 12.5 percent for middle- to lower-income workers, the simulations imply that 53 percent of older workers would participate in voluntary personal accounts. The response of participation to matching is very inelastic; it is very unlikely that participation by older workers would achieve the mid-range assumption by the Commission of 67 percent. There is substantial heterogeneity in participation across subsets of older workers: participation would be the lowest for low-educated, minority, and unmarried older workers. |
| Keywords: | social security, reform, matching |
| JEL: | H55 J14 J15 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2004-22&r=lab |
| By: | Keith A. Bender (University of Wisonsin-Milwaukee); Natalia A. Jivan (Center for Retirement Research at Boston College) |
| Abstract: | Economic well-being in retirement has been of increasing interest for economic researchers. The policy implications are large. As the baby boom generation nears retirement, understanding the factors that determine economic well-being enables policymakers to evaluate and possibly reform present retirement institutions, such as public and private pension programs. Of particular interest in this field has been the focus on retirement income adequacy, that is, the financial resources retirees need to be above some minimal level. While this area of research is important, focusing on just the economic well-being of individuals may miss other factors that influence overall welfare. Indeed, there has been a lack of research on other aspects of well-being for retirees in the economics literature. This brief attempts to fill this void by examining the determinants of the overall well-being of retirees, using the 2000 Health and Retirement Study. The brief is organized as follows. The next section reviews the economics literature on well-being measures. The second section explains the data used in the analysis presented in this brief, while the third section reviews the results. A final section summarizes the study and offers areas of future research. |
| Keywords: | retirement, baby boomers, income, well-being, retiree, satisfaction |
| JEL: | D31 J14 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib28&r=lab |
| By: | Mauricio Soto (Center for Retirement Research at Boston College) |
| Abstract: | In 1980, the Chilean pension system was in crisis. It was paying more in benefits than it was receiving in contributions, and the projected actuarial imbalance was greater than the country's Gross Domestic Product. The prescribed solution was to radically transform the traditional pay-as-you-go structure to a system based on personal retirement accounts. The Box on page two describes the main features of the current system. Nearly 25 years after the reform, it is possible to assess the Chilean experience. |
| Keywords: | Chile, pension system |
| JEL: | H55 P5 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib31&r=lab |
| By: | Annika Sunden (Center for Retirement Research at Boston College) |
| Abstract: | Many countries are discussing how to reform their pension systems in order to meet the demands of an aging society. A trend in these reform discussions is to introduce individual accounts as part of both public and occupational schemes. Sweden was an early mover in this process. In 1998, Sweden introduced a second tier of mandatory individual accounts — the Premium Pension — in the public system. The individual account component in the public pension system was designed as a “carve-out” and constitutes a relatively small portion of the new system. The contribution rate to the overall system is 18.5 percent: 16 percent is paid to the first tier, which is financed on a pay-as-you-go basis and pays a benefit determined by a worker’s lifetime earnings, while 2.5 percent is credited to a funded individual account. In addition, a means-tested guarantee benefit provides a minimum pension for workers with low earnings. The individual accounts are self-directed and participants can invest in a broad array of domestic and international funds. For individuals who do not wish to make an active investment decision, the government has established a default fund. The first investment elections in the Premium Pension plan took place in the fall of 2000 when all Swedes born after 1938 were able to choose how to invest their contributions from a menu of about 500 mutual funds. This brief evaluates the Swedish experience with individual accounts to date and discusses the lessons that can be learned from the first four years. |
| Keywords: | pensions, Sweden, individual account |
| JEL: | H55 P5 F |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib22&r=lab |
| By: | Alicia H. Munnell (Center for Retirement Research at Boston College); Mauricio Soto (Center for Retirement Research at Boston College) |
| Abstract: | A potential component of the administration’s Social Security proposal is to shift from “wage indexing” of benefits to “price indexing.” This change sounds modest, but, in fact, would change the nature of the Social Security program. Price indexing would preserve the purchasing power of Social Security benefits, but these benefits would represent an ever-declining percentage of earnings before retirement. This Just the Facts discusses the reasons for keeping benefits up-to-date with either prices or wages. Then it describes the mechanics of both wage and price indexing, and the impact of shifting from wages to prices. Finally, it explores the implications of price indexing in terms of possible long-run responses — periodic adjustments or increased reliance on welfare programs. |
| Keywords: | price indexing, wage indexing, social security benefits |
| JEL: | H55 I3 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:crr:jusfac:jtf_14&r=lab |
| By: | Karen E. Smith (Urban Institute); C. Eugene Steuerle (Urban Institute); Pablo Montagnes (Urban Institute) |
| Abstract: | Some Social Security reforms would provide guarantees that individuals would not receive less under a reformed system than would be provided by current law. However, the “current law” benefit formula increases benefits when wages rise. Any reform successfully adding to economic growth, therefore, would affect those promised levels of benefits, as well as revenues and the interest rates that determine what could be earned and paid out of individual accounts. This paper concludes that guarantees could add significantly to the costs of Social Security, reduce any reduction in budget imbalance achieved through other parts of a reform, and add to taxes, direct or implicit, that must be paid to cover those costs. Stock and bond market variation, as well as variation in returns on individual accounts, also add to costs when reform contains a guarantee, as government bears mainly downside risks. A variety of examples are provided for one generic type of reform. |
| Keywords: | social security, reform |
| JEL: | H55 |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:2004-21&r=lab |