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on Economics of Ageing |
| By: | Gary V. Engelhardt; Jonathan Gruber; Anil Kumar |
| Abstract: | Social Security faces a major financing shortfall. One policy option for addressing this shortfall would be to raise the earliest age at which individuals can claim their retirement benefits. A welfare analysis of such a policy change depends critically on how it affects living standards. This paper estimates the impact of the Social Security early entitlement age on later-life elderly living standards by tracing birth cohorts of men who had access to different potential claiming ages. The focus is on the Social Security Amendments of 1961, which introduced age 62 as the early entitlement age (EEA) for retired-worker benefits for men. Based on data from the Social Security Administration and March 1968-2001 Current Population Surveys, reductions in the EEA in the long-run lowered the average claiming age by 1.4 years, which lowered Social Security income for male-headed families in retirement by 1.5% at the mean, 3% at the median, and 4% at the 25th percentile of the Social Security income distribution. The increase in early claiming was associated with a decrease in total income, but only at the bottom of the income distribution. There was a large associated rise in elderly poverty and income inequality; the introduction of early claiming raised the elderly poverty rate by about one percentage point. Finally, for the 1885-1916 cohorts, the implied elasticity of poverty with respect to Social Security income for male-headed families is 1.6−. Overall, we find that the introduction of early claiming was associated with a reduction in income and an increase in the poverty rate in old age for male-headed households. |
| JEL: | H31 J26 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24609&r=age |
| By: | Joanna Tyrowicz (Institute for Labour Law and Industrial Relations in the European Union IAAEU), Trier University); Krzysztof Makarski (Warsaw School of Economics) |
| Abstract: | We develop an OLG model with realistic assumptions about longevity to analyze the welfare effects of raising the retirement age. We look at a scenario where an economy has a pay-as-you-go defined benefit scheme and compare it to a scenario with defined contribution schemes (funded or notional). We show that, initially, in both types of pension system schemes the majority of welfare effects comes from adjustments in taxes and/or prices. After the transition period, welfare effects are predominantly generated by the preference for smoothing inherent in many widely used models. We also show that although incentives differ between defined benefit and defined contribution systems, the welfare effects are of comparable magnitude under both schemes. We provide an explanation for this counter-intuitive result. |
| Keywords: | longevity, PAYG, retirement age, pension system reform, welfare |
| JEL: | C68 E21 J11 H55 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:iaa:dpaper:201804&r=age |
| By: | Cipriani, Giam Pietro (University of Verona); Pascucci, Francesco (University of Verona) |
| Abstract: | We set up an overlapping generations model with endogenous fertility to study pensions policies in an ageing economy. We show that an increasing life expectancy may not be detrimental for the economy or the pension system itself. On the other hand, conventional policy measures, such as increasing the retirement age or changing the social security contribution rate could have undesired general equilibrium effects. In particular, both policies decrease capital per worker and might have negative effects on the fertility rate, thus exacerbating population ageing. |
| Keywords: | overlapping generations, pension policies, endogenous fertility, ageing |
| JEL: | H55 J13 J18 J26 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11511&r=age |
| By: | Lorenti, Angelo; Dudel, Christian; Myrskylä, Mikko |
| Abstract: | Under the pressure of population aging the Italian pension system has undergone reforms to increase labor force participation and retirement age, and, thus, the length of working life. However, how the duration of working life has developed in recent years is not well understood. This paper is the first to analyze trends in working life expectancy in Italy. We use data from a nationally representative longitudinal sample of 880,000 individuals from 2003 to 2013 and estimate working life expectancy by gender, occupational category, and region of residence using a Markov chain approach. We document large and increasing heterogeneity in the length of working life. From 2003–2004 to 2012–2013, working life expectancy for men declined from 35.2 to 27.2 years and for women from 34.7 to 23.7 years, increasing the gender gap to 3.5 years. Both young and old were hit, as roughly half of the decline was attributable to ages below 40, half above 40. Working life expectancy declined for all occupational groups, but those in manual occupations lost most, 8.5 years (men) and 10.5 years (women). The North–South economic gradient widened such that men living in the North were expected to work 8 years longer than women living in the South. The fraction of working life of total life expectancy at age 15 declined to record lows at 40% for men and 34% for women in 2012–2013. Policies aiming at increasing total population working life expectancy need to take into consideration the socio-demographic disparities highlighted by our results. |
| Keywords: | Working life expectancy; Great recession; Italy; Financial crisis; Working life table; Multistate life table |
| JEL: | N0 |
| Date: | 2018–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:88302&r=age |
| By: | Pim B. Kastelein (University of Amsterdam); Ward E. Romp (University of Amsterdam, Netspar) |
| Abstract: | When the financial positions of pension funds worsen, regulations prescribe that pension funds reduce the gap between their assets (invested contributions) and their liabilities (accumulated pension promises). This paper quantifies the business cycle effects and distributional implications of various types of restoration policies. We extend a canonical New-Keynesian model with a tractable demographic structure and, as a novelty, a flexible pension fund framework. Fund participants accumulate real or nominal benefits and funding adequacy is restored by revaluing previously accumulated pension wealth (Defined Contribution) or changing the pension fund contribution rate on labour income (Defined Benefit). Generally, economies with Defined Contribution pension funds respond similarly to adverse capital quality shocks as economies without pension funds. Defined Benefit pension funds, however, distort labour supply decisions and exacerbate economic fluctuations. Retirees prefer Defined Benefit over Defined Contribution funds in case they face deficits, while the current and future working population prefers the opposite. |
| Keywords: | Pension Fund; Regulation; Business Cycles; Life cycle; New-Keynesian model |
| JEL: | J32 E32 D91 E21 |
| Date: | 2018–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20180053&r=age |
| By: | Lisa Laun; Mårten Palme |
| Abstract: | This paper studies the background to the increase in labor force participation of older workers in Sweden since 2000. In the first part, we study how the characteristics of the elderly have changed with respect to health, education level and work environment, as well as the impact of joint decision-making within the household. In the second part, we study the importance of institutional changes, including a major reform of the old-age pension system, introduction of tax credits for older workers, changes of the mandatory retirement age and stricter eligibility criteria in the disability insurance program. We find that the rise in labor force participation has coincided with improvements in health and educational attainment across birth cohorts as well as increased screening stringency in the disability insurance program. |
| JEL: | J26 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24593&r=age |
| By: | Martin, John P. (University College Dublin) |
| Abstract: | Population ageing poses stark dilemmas for labour markets, social protection systems and cultural norms. It will put strong downward pressure on labour supply, leading to falling real incomes and huge financial pressures on social protection systems unless there is an offsetting increase in employment rates. This is especially true for older workers whose employment rates are well below those of prime-age adults. In this paper, I examine how the labour market for older workers has evolved in OECD countries since 1990, what are the main forces at work, what are the main obstacles to working longer and how might public policies help overcome them. I also speculate about the future for older workers faced with the challenges and opportunities posed by the gig economy. |
| Keywords: | population ageing, older workers, retention and hiring rates, ageism, seniority pay, gig economy |
| JEL: | J08 J18 J21 J23 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11510&r=age |
| By: | Courtney Coile; Kevin S. Milligan; David A. Wise |
| Abstract: | This is the introduction and summary to the eighth phase of an ongoing project on Social Security Programs and Retirement Around the World. This project, which compares the experiences of a dozen developed countries, was launched in the mid 1990s following decades of decline in the labor force participation rate of older men. The first several phases of the project document that social security program provisions can create powerful incentives for retirement that are strongly correlated with the labor force behavior of older workers. Subsequent phases of the project have explored disability program provisions and their effects on retirement as well as potential obstacles to promoting work at older ages, including whether there is a link between older employment and youth unemployment and whether older individuals are healthy enough to work longer. In the two decades since the project began, the dramatic decline in men’s labor force participation has ended and been replaced by sharply rising participation rates. Older women’s participation has been rising as well. In this eighth phase of the project, we explore this phenomenon of working longer. We document trends in participation and employment and also consider factors that may help to explain these changes in behavior. We conclude that social security reforms as well as other factors such as the movement of women into the labor force have likely played an important role. |
| JEL: | J14 J26 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24584&r=age |
| By: | Francesco Grigoli; Zsoka Koczan; Petia Topalova |
| Abstract: | Advanced economies are in the midst of a major demographic transition, with the number of elderly rising precipitously relative to the working-age population. Yet, despite the acceleration in demographic shifts in the past decade, advanced economies experienced markedly different trajectories in overall labor force participation rates and the workforce attachment of men and women. Using a cohort-based model of labor force participation for 17 advanced economies estimated over the 1985-2016 period, we document a significant role of common patterns of participation over the life cycle and shifts in these patterns across generations for aggregate labor supply, especially in the case of women. The entry of new cohorts of women led to upward shifts in the age participation pro le, boosting aggregate participation rates. However, this process plateaued in most advanced economies, with signs of reversal in some. Using the model's results to forecast future participation trends, we project sizable declines in aggregate participation rates over the next three decades due to the aging of the population. Illustrative simulations show that implementing policies encouraging labor supply can help attenuate but may not fully offset demographic pressures. |
| Date: | 2018–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/120&r=age |
| By: | Julian Diaz Saavedra (Department of Economic Theory and Economic History, University of Granada.) |
| Abstract: | The 2013 Spanish Pension Reform, aimed at guaranteeing the nancial sustainability of the system, introduced, among other measures, the Pension Revaluation Index (PRI), which uncouples annual pension updates from the Consumer Price Index (CPI) increases and makes the annual rise in all pensions conditional upon the system's revenue and expenditure being balanced, with ceilings and oors set in place. This automatic adjustment mechanism, however, has posed serious concerns about future pension adequacy, this being the degree of poverty alleviation and consumption smoothing that the pensions system provides to retirees, due to the expected large future reductions in the real value of the average pension. In this paper, we use a general equilibrium life cycle model, calibrated to micro and macro data in Spain, to study the scal and welfare consequences of three options for increasing pension generosity in Spain; (i) disability and minimum pensions are again fully indexed with the CPI; (ii) minimum and lower value pensions are fully indexed with the CPI; and (iii) returning to full price indexation of all Spanish pensions. While these three reforms increase, on average, pension adequacy, the tax increases needed to nance the higher future pension expenditure di er signi cantly. Moreover, most current cohorts prefer returning to the full price indexation of all Spanish pensions, but future cohorts prefer that only disability and minimum pensions be fully indexed with the CPI. |
| Keywords: | Computable general equilibrium, social security reform, retirement. |
| JEL: | C68 H55 J26 |
| Date: | 2018–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:gra:wpaper:18/03&r=age |
| By: | Cardella, Eric (Texas Tech University); Kalenkoski, Charlene M. (Texas Tech University); Parent, Michael (University of Texas at Austin) |
| Abstract: | This paper presents the results of an experiment that is designed to examine how information presentation and complexity impact retirement-savings behavior. The experiment is performed twice, using both a Qualtrics panel of new employees and a sample of business school students. In this experiment, participants first were provided with either a long or short description of a hypothetical employer-sponsored 401(k) plan. Then they were asked whether they would enroll in the hypothetical plan and, if so, what percentage of their salary they would contribute. If they chose to contribute, they were asked how they would like to allocate their contribution between stocks and bonds. Participants were offered the option to stick with pre-assigned default options such as a 4% contribution and a 50-50 stocks and bonds split. The hypothesis is that providing concise information with helpful recommendations would improve choices over providing lengthy and detailed information. However, controlling for demographic and other factors, this hypothesis was not supported by the data, for either the new employees or the business school students. Thus, the data suggest that simplifying the presentation of retirement-plan information to employees is unlikely to result in vastly improved retirement-planning choices. |
| Keywords: | retirement planning, 401(k), information complexity, nudge, choice architecture |
| JEL: | G11 H31 J32 D83 C90 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11538&r=age |
| By: | Armel Ngami (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales); Thomas Seegmuller (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales) |
| Abstract: | This paper analyses the effect of a pay-as-you-go pension system on the evolution of capital and pollution, and on the efficiency of an environmental versus health policy. In an overlapping generations model (OLG), we introduce endogenous longevity that depends on pollution and health expenditures. Global dynamics may display multiple balanced growth paths (BGP). We show that by discouraging savings, a policy that promotes the pension system enlarges the environmental poverty trap. More surprisingly, the environmental policy has contrasted effects according to the significance of the pension system. If it has a low size, a raise of the environmental policy enlarges the environmental poverty trap and leads to a rise in capital over pollution at the highest stationary equilibrium. In contrast, in economies where intergenerational solidarity is well developed, capital over pollution decreases at the highest BGP. In such a case, the environmental policy does not necessarily lead to a better longevity and growth. |
| Keywords: | longevity,environment,health,pension system,growth,pollution |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01798710&r=age |
| By: | Marcin Bielecki (Narodowy Bank Polski and University of Warsaw); Michał Brzoza-Brzezina (Narodowy Bank Polski and SGH Warsaw School of Economics); Marcin Kolasa (Narodowy Bank Polski and SGH Warsaw School of Economics) |
| Abstract: | The recent literature shows that demographic trends may affect the natural rate of interest (NRI), which is one of the key parameters affecting stabilization policies implemented by central banks. However, little is known about the quantitative impact of these processes on monetary policy, especially in the European context, despite persistently low fertility rates and an ongoing increase in longevity in many euro area economies. In this paper we develop a New Keynesian life-cycle model, and use it to assess the importance of population ageing for monetary policy. The model is fitted to euro area data and successfully matches the age profiles of consumption-savings decisions made by European households. It implies that demographic trends have contributed and are projected to continue to contribute significantly to the decline in the NRI, lowering it by more than 1.5 percentage points between 1980 and 2030. Despite being spread over a long time, the impact of ageing on the NRI may lead to a sizable and persistent deflationary bias if the monetary authority fails to account for this slow moving process in real time. We also show that, with the current level of the inflation target, demographic trends have already exacerbated the risk of hitting the lower bound (ZLB) and that the pressure is expected to continue. Delays in updating the NRI estimates by the central bank elevate the ZLB risk even further. |
| Keywords: | ageing, monetary policy, zero lower bound, life-cycle models |
| JEL: | E31 E52 J11 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:284&r=age |
| By: | Francesco C. Billari; Carlo A. Favero; Francesco Saita |
| Abstract: | In this article, we present and test experimentally a low-cost, Internet-based, financial literacy program that we designed for implementation with the largest industrial pension fund in Italy. The program, Finlife (Financial Education and Planning for a Long Life) included 1) an instructional video and materials on financial, and demographic, literacy, provided online; 2) an experimental design that explicitly allows to evaluate the impact of the online content on financial and demographic literacy, as well as on short-term behavioral changes; 3) a follow-up that allows to assess the stability of some of the experimental outcomes. Finlife was designed to be a low-cost and scalable approach to increase financial and demographic literacy, consistently with a ‘nudge’ philosophy. Our findings show that Finlife delivered a substantially and statistically significant increase in financial and demographic literacy, as well as a push towards seeking more information on financial markets and choices related to financial planning. |
| Keywords: | financial literacy, demographic literacy, field experiment, Finlife |
| JEL: | D91 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp1767&r=age |
| By: | van Dalen, Harry (Tilburg University, School of Economics and Management); Henkens, Kene (Tilburg University, School of Economics and Management) |
| Abstract: | Individual freedom of choice is a much heralded and cherished principle in democracies. Milton Friedman and colleagues at his alma mater, the University of Chicago, made this a cornerstone of their belief (Friedman & Friedman, 1990). The freedom of choice is the antidote to excessive government interference and an instrument which enables people to realize their goals and discipline agents and organizations. The call for freedom is getting louder as individualization of every life is becoming more and more visible and trust in institutions is eroding. Numerous sociologists of name and fame (Beck, 2002; Putnam, 2001) have documented this trend and predicted its dire consequences. Policy makers have translated this trend into privatizing tasks and services which were financed or provided on a collective scale. Of course, the question remains: do people really want to take the fate of their lives in their own hands? For simple products and services freedom can be safely entrusted to individuals, but for complex services with long lasting consequences freedom of choice may not be in the interest of citizens at all. This question will probably be at the forefront in debates about many reforms in social security, health care, pensions as governments are shifting risks from collective levels to the level of the individual. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:4fb45634-c9b3-469a-9f73-1b33d05426ca&r=age |
| By: | Currie, Janet; Schwandt, Hannes; Thuilliez, Josselin |
| Abstract: | We develop a method to compare levels and trends in inequality in mortality in the United States and France in a similar framework. The comparison shows that while income inequality has increased in both the United States and France, inequality in mortality in France remained remarkably low and stable. In the United States, inequality in mortality increased for older groups (especially women) while it decreased for children and young adults. These patterns highlight the fact despite the strong cross-sectional relationship between income and health, there is no necessary connection between changes in income inequality and changes in health inequality. |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12935&r=age |
| By: | Nishi, Takumi |
| Abstract: | Cost sharing, including copayment and coinsurance, is often used as a means of containing medical expenditure by reducing unnecessary or excessive use of health-care resources. Previous studies have reported the effects of reducing the coinsurance rate in Japan from 30% to 10% on demand for medical care among people aged 70 years. However, the coinsurance rate in Japan for individuals aged 70–74 years old has recently been increased from 10% to 20%. This study aimed to estimate the economic impact of coinsurance rate revision on health-care resource utilization using interrupted time-series analysis of employee health insurance claims data. I classified those who were born in FY 1944 and whose coinsurance rates decreased to 20% into the 10%-reduction group. It was found that the 10%-reduction group showed a lower increase of health-care utilization than the 20%-reduction group. However, no significant differences were observed in the overall and inpatient settings. The results of this study suggest that increasing the coinsurance rate among elderly people would reduce outpatient health-care resource utilization; however, it would not necessarily reduce overall health-care resource utilization. |
| Keywords: | Coinsurance; Healthcare resource utilization; Elderly |
| JEL: | I13 I18 |
| Date: | 2018–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86329&r=age |
| By: | John Bailey Jones; Mariacristina De Nardi; Eric French; Rory McGee; Justin Kirschner |
| Abstract: | Using dynamic models of health, mortality, and out-of-pocket medical spending (both inclusive and net of Medicaid payments), we estimate the distribution of lifetime medical spending that retired U.S. households face over the remainder of their lives. We find that at age 70, households will on average incur $122,000 in medical spending, including Medicaid payments, over their remaining lives. At the top tail, 5 percent of households will incur more than $300,000, and 1 percent of households will incur over $600,000 in medical spending inclusive of Medicaid. The level and the dispersion of this spending diminish only slowly with age. Although permanent income, initial health, and initial marital status have large effects on this spending, much of the dispersion in lifetime spending is due to events realized later in life. Medicaid covers the majority of the lifetime costs of the poorest households and significantly reduces their risk. |
| JEL: | D1 D14 E02 E2 H31 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24599&r=age |