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on Economics of Ageing |
| By: | Haan, Peter (DIW Berlin); Prowse, Victoria L. (Cornell University) |
| Abstract: | How can public pension systems be reformed to ensure fiscal stability in the face of increasing life expectancy? To address this pressing open question in public finance, we estimate a life-cycle model in which the optimal employment, retirement and consumption decisions of forward-looking individuals depend, inter alia, on life expectancy and the design of the public pension system. We calculate that, in the case of Germany, the fiscal consequences of the 6.4 year increase in age 65 life expectancy anticipated to occur over the 40 years that separate the 1942 and 1982 birth cohorts can be offset by either an increase of 4.34 years in the full pensionable age or a cut of 37.7% in the per-year value of public pension benefits. Of these two distinct policy approaches to coping with the fiscal consequences of improving longevity, increasing the full pensionable age generates the largest responses in labor supply and retirement behavior. |
| Keywords: | life expectancy, public pension reform, retirement, employment, life-cycle models, consumption, tax and transfer system |
| JEL: | D91 J11 J22 J26 J64 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5858&r=age |
| By: | Staubli, Stefan (University of St. Gallen); Zweimüller, Josef (University of Zurich) |
| Abstract: | This paper studies how an increase in the minimum retirement age affects the labor market behavior of older workers. Between 2000 and 2006 the Austrian government gradually increased the early retirement age from 60 to 62.2 for men and from 55 to 57.2 for women. Using administrative data on the universe of Austrian private-sector employees, the results from the empirical analysis suggest that this policy change reduced retirement by 19 percentage points among affected men and by 25 percentage points among affected women. The decline in retirement was accompanied by a sizeable increase in employment of 7 percentage points among men and 10 percentage points among women, but had also important spillover effects into the unemployment insurance program. Specifically, the unemployment rate increased by 10 percentage points among men and 11 percentage points among women. In contrast, the policy change had only a small impact on the share of individuals claiming disability or partial retirement benefits. |
| Keywords: | early retirement, retirement age, labor supply, policy reform |
| JEL: | J14 J26 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5863&r=age |
| By: | Lena Calahorrano |
| Abstract: | In the face of rising old-age dependency ratios in industrialized countries like Germany, politicians and their electorates discuss the loosening of immigration policies as one policy option to ensure the sustainability of public social security systems. The question arises whether this policy option is feasible in aging countries: older individuals are typically found to be more averse to immigration. However, cross-sectional investigations may confound age with cohort effects. This investigation uses the 1999-2008 waves of the German Socio-Economic Panel to separate the effect of age on immigration attitudes from cohort and also from time effects. Over the life cycle stated immigration concerns are predicted to increase well into retirement and decrease afterward. Relative to other issues, immigration concerns are found to actually decrease over the life cycle. |
| Keywords: | Immigration, demographic change, political economy |
| JEL: | D78 F22 J10 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp389&r=age |
| By: | Adema, Y.; Bonenkamp, J.; Meijdam, A.C. (Tilburg University, Center for Economic Research) |
| Abstract: | This paper explores the interaction between retirement flexibility and portfolio choice in an overlapping-generations model. We analyse this interaction both in a partial-equilibrium and general-equilibrium setting. Retirement flexibility is often seen as a hedge against capital-market risks which justifies more risky asset portfolios. We show, however, that this positive relationship between risk taking and retirement fl exibility is weakened - and under some conditions even turned around - if not only capital-market risks but also productivity risks are considered. Productivity risk in combination with a high elasticity of substitution between consumption and leisure creates a positive correlation between asset returns and labour income, reducing the willingness of consumers to bear risk. Moreover, it turns out that general-equilibrium effects can either increase or decrease the equity exposure, depending on the degree of substitutability between consumption and leisure. |
| Keywords: | retirement (in)fl exibility;portfolio allocation;risk;intratemporal substitution elasticity |
| JEL: | E21 G11 J26 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011077&r=age |
| By: | Alicia H. Munnell; Jean-Pierre Aubry; Josh Hurwitz; Laura Quinby |
| Abstract: | State and local pensions have been headline news since the 2008 financial collapse reduced the value of their assets, leaving a substantial unfunded liability. The deterioration in the funded status of these plans raised pension costs at the same time that the ensuing recession wreaked havoc with state and local budgets. Legislatures across the country have responded by reducing pension benefits – primarily for new employees – and increasing employer and employee contributions. As part of that process, governors in several states have launched initiatives to curb collective bargaining in the public sector. One possible implication is that governors view unions as responsible for pushing up state and local pension benefits. This brief identifies the impact of public sector unions and other factors on benefit levels, wages, and employment. The brief is organized as follows. The first section summarizes what is known about pensions, wages, workers, and unionization in the public sector. The second section reports on a series of empirical exercises to determine the role of unions in explaining public pensions and wages. The results show that unions have no measurable effect on plan generosity or rate of growth in pension benefits, but do have a quantifiable impact on wage levels and perhaps number of workers. The third section presents a possible reason for this outcome. Public sector pensions are legislated, not bargained, so the articulateness and acumen of the lobbyists may be more important than the number of union members; in contrast, wages are bargained and union strength could have a more direct effect. The final section concludes that this area is ripe for further research because the results appear to contradict the general perception of commentators and politicians. |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ibslp19&r=age |
| By: | Federica Teppa |
| Abstract: | This paper provides new evidence on individual preferences over annuities and lump sum payments based on hypothetical questions posed in the DNB Household Survey in 2005. Contrary to the majority of papers in the annuitization puzzle literature, this study allows to control explicitly for the subjective survival probability (SSP), a key driver of the decision about whether to annuitize or not as a perceived measure of longevity risk. We find that people expecting to live longer do claim to prefer the annuity. This finding is very robust to controlling for bequest motives. The relevance of this paper is twofold. First, it delivers an important empirical result on the role of the SSP that is still not directly tested in the literature. Second and more important, combined with the empirical evidence that on average individuals tend to systematically underestimate their life expectancy, the findings have strong policy implications. The annuitization puzzle may be alleviated by helping individuals in better assessing their longevity risk, rather than forcing their actions. |
| Keywords: | Longevity Risk; Annuitization Puzzle; Survey Data; Hypothetical Choices |
| JEL: | C5 C8 D12 G11 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:302&r=age |
| By: | Carlo Favero; Marco Giacoletti |
| Abstract: | In this paper we propose a model to forecast future mortality that includes information on the limits to life and on progress in medicine. We apply the model to forecasting future mortality and survival rates for the males population in England andWales. Our proposal extends the benchmark stochastic mortality model along two dimensions. First, we try and deal explicitly with tail risk in the cross-sectional estimation. by including information about the "limit to life" in the sample used to construct factors for the cross-sectional dimension of mortality rates. Second, we propose to substitute the usual stochastic trend model adopted for the time series of risk factors with a predictive framework based on available evidence on medical progress and causes of death. The model projects very little variability for limits to life over the next ten years and predicts that in 2020 the probability that an individual age 65 will survive until 85 is 20% with an upper bound of 23% and a lower bound of 17%. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:406&r=age |