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on Economics of Ageing |
| By: | Daniel Kemptner |
| Abstract: | This paper proposes a dynamic life cycle model of health risks, employment, early retirement, and wealth accumulation in order to analyze the health-related risks of consumption and old age poverty. In particular, the model includes a health process, the interaction between health and employment risks, and an explicit modeling of the German public insurance schemes. I rely on a dynamic programming discrete choice framework and estimate the model using data from the German Socio-Economic Panel. I quantify the health-related life cycle risks by simulating scenarios where health shocks do or do not occur at different points in the life cycle for individuals with differing endowments. Moreover, a policy simulation investigates minimum pension benefits as an insurance against old age poverty. While such a reform raises a concern about an increase in abuse of the early retirement option, the simulations indicate that a means test mitigates<br /> the moral hazard problem substantially. |
| Keywords: | dynamic programming, discrete choice, health, employment, early retirement, consumption, tax and transfer system |
| JEL: | C61 I14 J22 J26 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp583&r=age |
| By: | Marc Fleurbaey (Princeton University - Princeton University); Marie-Louise Leroux (Université du Québec - Université du Québec - Université du Québec, CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique); Pierre Pestieau (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales [EHESS] - Ecole des Ponts ParisTech - Ecole normale supérieure de Paris - ENS Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CEPR - Center for Economic Policy Research - CEPR); Grégory Ponthière (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales [EHESS] - Ecole des Ponts ParisTech - Ecole normale supérieure de Paris - ENS Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | A premature death unexpectedly brings a life and a career to their end, leading to substantial welfare losses. We study the retirement decision in an economy with risky lifetime, and compare the laissez-faire with egalitarian social optima. We consider two social objectives: (1) the maximin on expected lifetime welfare (ex ante), allowing for a compensation for unequal life expectancies; (2) the maximin on realized lifetime welfare (ex post), allowing for a compensation for unequal lifetimes. The latter optimum involves, in general, decreasing lifetime consumption profiles, as well as raising the retirement age, unlike the ex ante egalitarian optimum. This result is robust to the introduction of unequal life expectancies and unequal productivities. Hence, the postponement of the retirement age can, quite surprisingly, be defended on egalitarian grounds --although the conclusion is reversed when mortality strikes only after retirement. |
| Keywords: | Risky lifetime ; Mortality ; Labour supply ; Retirement ; Compensation |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-00857945&r=age |
| By: | Hannes Schwandt |
| Abstract: | A large literature in behavioral and social sciences has found that human wellbeing follows a U-shape over age. Some theories have assumed that the U-shape is caused by unmet expectations that are felt painfully in midlife but beneficially abandoned and experienced with less regret during old age. In a unique panel of 132,609 life satisfaction expectations matched to subsequent realizations, I find people to err systematically in predicting their life satisfaction over the life cycle. They expect -- incorrectly -- increases in young adulthood and decreases during old age. These errors are large, ranging from 9.8% at age 21 to -4.5% at age 68, they are stable over time and observed across socio-economic groups. These findings support theories that unmet expectations drive the age U-shape in wellbeing. |
| Keywords: | Life satisfaction, expectations, aging |
| JEL: | A12 I30 D84 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp580&r=age |
| By: | Dirk Ulbricht |
| Abstract: | Returns merely based on one purchasing price of an asset are uninformative for people regularly contributing to their old-age provision. Here, each purchase has an influence on the outcome. Still, they are commonly used in finance literature, giving an overly optimistic view of expected long-term stock market returns and risks. Moreover, around business cycle turning points when volatility is high, these differences are accentuated so that the timing of market entries and exists differ substantially. This article compares risk and returns for regular and lump-sum investors for all possible intervals of investments in the Dow Jones Industrial Average ranging from one to 480 months from January 1934 to April 2013. Moreover, the optimal timing for the two types of investors in the run-up to business cycle turning points are contrasted. Lump-sum returns for forty year-horizons overstate regular contributors yields by 1.4 percentage points implying a forty percent higher terminal value. The Sharpe ratio of lump-sum investments is about 260 percent higher than for regular contributors, and the risk of negative returns disappears for horizons that are six years shorter. Increasing contributions deteriorate risk and returns. While lump-sum investors have eight months more time to switch to riskless assets before a contraction, regular contributors may return five months earlier to the stock market than lump-sum investors. |
| Keywords: | Retirement Accounts, Risk and Return, Business Cycle, Investment Management, Dollar-Cost Averaging |
| JEL: | G11 G10 E44 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1324&r=age |
| By: | Mavromaras, Kostas G. (NILS, Flinders University); Zhu, Rong (NILS, Flinders University) |
| Abstract: | In this paper we estimate the interdependence of labour force participation decisions made by Australian couples from 2001 to 2011. We focus on couples with a mature age husband, and estimate the interdependence of the participation decision of the couple. We find that the decision of a wife to work or not influences positively, and in a causal fashion, the decision of her husband to work or not. In our paper we use counterfactual analysis to estimate the impact of the increasing labour force participation of a wife on her husband's participation. We find that the increased labour force participation of married women observed between 2002 and 2011 has been responsible for about a 4 percentage points increase in the participation of their mature age husbands. |
| Keywords: | labour force participation, spousal status, joint decision making, male employment trends, Australia |
| JEL: | J14 J21 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7581&r=age |