29 augusti 2012
Martin Beznoska, Viktor Steiner, DIW: Does consumption decline at retirement? Evidence from repeated cross-section data for Germany. The life-cycle hypothesis implies that consumption would not decline at retirement. However, several studies found relevant declines in food consumption after retirement for the United States. Others concluded that this contradiction of the life-cycle hypothesis is solved by allowing for broader measures of consumption than food. Using repeated cross section data for Germany, this paper analyzes the retirement consumption puzzle for the German case. For our broadest consumption measure, which includes the flow of durables' consumption, we find, on average, no significant consumption decline at retirement. This also holds if the potential endogeneity of individual retirement is controlled for in instrumental variable regressions. We also find heterogeneity in retirement effects among birth cohorts, the level of household wealth, and the level of consumption, but these effects do not support the hypothesis that retirement is associated with a strong reduction of consumption among poorer households.
Frank W. Heiland, Zhe Li, CRR: Changes in Labor Force Participation of Older Americans and Their Pension Structures: A Policy Perspective. We investigate how the shift in private pension coverage from defined benefit (DB) to defined contribution (DC) retirement plans since the 1980s has contributed to the substantial rise in labor force participation of older Americans. We show that the timing of the exit from the labor force is closely tied to wealth accrual in DB plans, while wealth accrual in DC plans does not provide similar incentives for the timing of retirement. We estimate that, holding the share of individuals with employer-sponsored pensions constant, the shift from DB to DC pension coverage increased the labor force participation rate of workers age 60 to 64 by 4.9 percentage points (1.7 points for ages 65-69). Finally, we show that DC pension holders are more concentrated at the earliest take-up age for Social Security old-age retirement benefits and are less responsive to changes in Social Security retirement age policy than DB pension holders.
Kadir Atalay, Garry F. Barrett, SEDAP: The Impact of Age Pension Eligibility Age on Retirement and Program Dependence: Evidence from an Australian Experiment. Identifying the effect of the financial incentives created by social security systems on the retirement behaviour of individuals requires exogenous variation in program parameters. In this paper we study the 1993 Australian Age Pension reform which increased the eligibility age for women to access the social security benefit. We find economically significant responses to the increase in the Age Pension eligibility age. An increase in the eligibility age of 1 year induced a decline in retirement probability by approximately 10 percent. In addition, we find that the social security reform induced significant "program substitution." The rise in the Age Pension eligibility age had an unintended consequence of increasing enrolment in other social insurance programs, particularly the Disability Support Pension, which functioned as an alternative source for funding retirement.
Espen Bratberg et al, CESifo: Is Recipiency of Disability Pension Hereditary? This paper addresses whether children’s exposure to parents receiving disability benefits induces a higher probability of receiving such benefits themselves. Most OECD countries experience an increasing proportion of the working-age population receiving permanent disability benefits. Using data from Norway, a country where around 10% of the working-age population rely on disability benefits, we find that the amount of time that children are exposed to their fathers receiving disability benefits affects their own likelihood of receiving benefits positively. This finding is robust to a range of different specifications, including family fixed effects.
Hanna Hultin, Christina Lindholm, Jette Möller, Karolinska Institutet: Is There an Association between Long-Term Sick Leave and Disability Pension and Unemployment beyond the Effect of Health Status? – A Cohort Study. The objective of this study was to investigate whether there is an association between long-term sick leave and disability pension and unemployment, when taking health status into account. The study was based on the Stockholm Public Health Cohort, restricted to 13,027 employed individuals (45.9% men) aged 18–59 in 2002 and followed until 2007. Having been on long-term sick leave increased the risk of disability pension (HR 4.01; 95% CI 3.19–5.05) and longterm unemployment (HR 1.45; 95% CI 1.05–2.00), after adjustment for health status. Long-term sick leave increases the risks of both disability pension and unemployment even when taking health status into account. The results support the hypothesis that long-term sick leave may start a process of marginalization from the labor market.
2 mars 2012
Atella, Vincenzo and Carbonari, Lorenzo, MPRA: When elders rule: is gerontocracy harmful for growth? We study the relationship between gerontocracy and aggregate economic perfomance in a simple model where growth is driven by human capital accumulation and productive government spending. We show that gerontocratic élites display the tendency to underinvest in public education and productive government services and thereby may be harmful growth. In absence of intergenerational altruism, the damage caused by gerontocracy is mainly due to the lack in long-term delayed-return investment originated by the shorter life horizon of the ruling class with respect to the rest of the population. An empirical analysis is carried out on a rich data set that al lows to test theoretical results across diﬀerent countries and diﬀerent sectors. The econometric results conﬁrm our main hypotheses.
Klaus Prettner, David Canning, Harvard: Increasing life expectancy and optimal retirement:does population aging necessarily undermine economic prosperity? In this paper we analyze the effects of changes in longevity and the pace of technological progress on interest rates, savings behaviour and optimal retirement decisions. In so doing we embed the dynamic optimization problem of choosing a life-cycle consumption path and the retirement age into a general equilibrium setting. Thereby we assume that technology evolves exogenously and the production side of the economy can be described by means of a neoclassical production function. Our results show that (i) the aggregate capital to consumption ratio increases and interest rates decrease in response to increases in longevity; (ii) the response of the optimal retirement age to increases in longevity is ambiguous. However, for reasonable parameter values the optimal retirement age increases in longevity; (iii) the aggregate capital to consumption ratio decreases and interest rates increase in response to faster technological progress; (iv) the response of the optimal retirement age to faster technological progress is ambiguous. However, for reasonable parameter values the optimal retirement age increases in the pace of technological improvements.
Taina Leinonen et al, SJPH: Interrelationships between education, occupational social class, and income as determinants of disability retirement. The effects of socioeconomic position on disability retirement may not be fully captured if the pathways between the various subdomains are disregarded. Our results suggest that efforts to delay and prevent disability retirement should focus on lifestyle and cognitive factors associated with education, as well as on factors associated with social class such as working conditions and power resources.
James M. Poterba, Steven F. Venti, David A. Wise, NBER: Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts. Many analysts have considered whether households approaching retirement age have accumulated enough assets to be well prepared for retirement. In this paper, we shift from studying household finances at the start of the retirement period, an ex ante measure of retirement preparation, to studying the asset holdings of households in their last years of life. The analysis is based on Health and Retirement Study. We find that a substantial fraction of persons die with virtually no financial assets--46.1 percent with less than $10,000--and many of these households also have no housing wealth and rely almost entirely on Social Security benefits for support. In addition this group is disproportionately in poor health. Based on a replacement rate comparison, many of these households may be deemed to have been well-prepared for retirement, in the sense that their income in their final years was not substantially lower than their income in their late 50s or early 60s. Yet with such low asset levels, they would have little capacity to pay for unanticipated needs such as health expenses or other financial shocks or to pay for entertainment, travel, or other activities. This raises a question of whether the replacement ratio is a sufficient statistic for the "adequacy" of retirement preparation.
Deloitte: Tilbage til arbejdsmarkedet. Erfaringer med folkepensionister og efterlønsmodtagere, der arbejder. På engelsk anvendes betegnelsen unretirement for, at folkepensioni-ster og efterlønsmodtagere vender tilbage til arbejdsmarkedet, selvom de oprindeligt havde trukket sig tilbage. At dømme efter antallet af folkepensionister og efterlønsmodta-gere, der stiller deres arbejdskraft til rådighed på job- og rekrut-teringsportaler, har pensionister og efterlønsmodtagere lyst til at arbejde. Samtidig har virksomhederne, der har ansat pensioni-ster og efterlønsmodtagere, gode erfaringer og fremhæver kvali-teter som stabilitet, omhyggelighed og lang erhvervs- og livser-faring hos deres medarbejdere over 60 år. Det skaber gode for-udsætninger for at få flere pensionister og efterlønsmodtagere til at vende tilbage til arbejdsmarkedet. Det Danska Social- och integrationsministeriet bedriver ett project för “Unretirement:
Benedict Clements, IMF: It’s the Years, Not The Mileage: IMF Analysis of Pension Reforms in Advanced Economies. Indiana Jones, the fictional character of the namesake movies, once said “It’s not the years, it’s the mileage.” This quote comes to mind as many advanced economies wrestle with pension reform and the best way to ensure both retirees and governments don’t go broke. Our view, explained in a new study, is that the years do matter. Our analysis shows that gradually raising retirement ages could help countries contain increases in pension spending and boost economic growth. Further cuts in pension benefits, or raising payroll contributions, are also options countries could consider, although many countries will find many advantages in raising retirement ages. The challenge is to reform pension systems without hurting their ability to provide income security for the elderly and prevent old-age poverty
Nicolai Kristensen, IZA: Training and Retirement. This paper presents results on the effect of formal life-long learning on the decision to retire early. Specifically, I estimate an Option Value model based on individual employer-employee longitudinal data including comprehensive government co-sponsored training records dating back more than 30 years. Human capital theory predicts that the amount of training and the length of working life will be positively correlated in order to recoup investment and yield a higher return. Significant upper bound effects of training in prolonging working life are found for certain types of training and certain groups of workers. However, out-of-sample simulations indicate that on average one year of training only adds up to one month to the career length. This means that training in itself is not enough to substantially prolong careers and increase the workforce.
Tobias Launa, Johanna Wallenius, HHS: A Life Cycle Model of Health and Retirement: The Case of Swedish Pension Reform. In this paper we develop a life cycle model of labor supply and retirement to study the interactions between health and the labor supply behavior of older workers, in particular disability insurance and pension claiming. In our framework, individuals choose when to stop working and, given eligibility criteria, when/if to apply for disability and pension benefits. Individuals care about their health and can partially insure against health shocks by investing in health. We use the model to study the labor supply implications of the recent Swedish pension reform. We find that the new pension system creates big incentives for the continued employment of older workers. In particular, the model predicts an increase in the average retirement age of more than two years.
Machado, C. Sofia, Portela, IZA: Miguel Hours of Work and Retirement Behavior. Using a novel dataset from the 2006 Portuguese Labor Force Survey this paper examines the impact of a voluntary reduction in hours of work, before retirement, on the moment of exit from the labor force. If, as often suggested, flexibility in hours of work is a useful measure to postpone retirement, then a reduction in working hours should be associated with retirement at later ages. Results prove otherwise suggesting that reducing hours of work before retirement is associated with early exits from the labor force. A reduction in hours of work seems to signal the worker's wish to retire sooner rather than to announce the desire of remaining in the labor market.
David M. Cutler Ellen Meara Seth Richards-Shubik, Harvard University: Healthy Life Expectancy: Estimates and Implications for Retirement Age Policy. The simultaneous growth in longevity and mounting budget deficits in the U.S. have increased interest in raising the age of eligibility for public health and retirement benefits. The consequences of this policy depend on the health of the near elderly, and on the distribution of health by demographic group. We first describe healthy life expectancy at age 62 by sex, race, and education. Healthy life expectancy varies widely within and across gender and race groups, with the best-off groups enjoying nearly 4 more years of healthy life than less well-off groups. We then simulate the capacity to work of near elderly individuals (62-64 year-olds) based on the work, disability, and retirement status of 57-61 year-olds reporting the same level of health. Our estimates indicate that work capacity is substantial. The health status of 62-64 year-olds suggests their labor force participation could rise by over 15 percentage points without access to early Social Security retirement benefits, while disability rates would increase modestly, by 3 percentage points. Still, less advantaged groups such as those without any college education, would experience a rise in disability rates that is twice as large, indicating the uneven burden of changes in the age of eligibility.
27 januari 2012
Petter Lundborg, Martin Nilsson, Johan Vikström, IZA: Socioeconomic Heterogeneity in the Effect of Health Shocks on Earnings: Evidence from Population-Wide Data on Swedish Workers. In this paper, we estimate socioeconomic heterogeneity in the effect of unexpected health shocks on labor market outcomes, using register-based data on the entire population of Swedish workers. We effectively exploit a Difference-in-Difference-in-Differences design, in which we compare the change in labor earnings across treated and control groups with high and low education levels. If the anticipation effects are similar for individuals with high and low education, any difference in the estimates across socioeconomic groups could plausibly be given a causal interpretation. Our results suggest a large amount of heterogeneity in the effects, in which individuals with a low education level suffer relatively more from a given health shock. These results hold across a wide range of different types of health shocks and become more pronounced with age. Our results suggest that socioeconomic heterogeneity in the effect of health shocks offers one explanation for how the socioeconomic gradient in health arises.
Alan L. Gustman, Thomas Steinmeier, Nahid Tabatabai, Michigan Retirement Research Center: How Did the Recession of 2007-2009 Affect the Wealth and Retirement of the Near Retirement Age Population in the Health and Retirement Study? This paper uses asset and labor market data from the Health and Retirement Study (HRS) to investigate how the recent "Great Recession" has affected the wealth and retirement of those in the population who were just approaching retirement age at the beginning of the recession, a potentially vulnerable segment of the working age population. The retirement wealth held by those ages 53 to 58 before the onset of the recession in 2006 declined by a relatively modest 2.8 percentage points by 2010. In more normal times, their wealth would have increased over these four years. The adverse labor market effects of the Great Recession are more modest. Although there is an increase in unemployment, that increase is not mirrored in the rate of flow out of full-time work or partial retirement. All told, the retirement behavior of the Early Boomer cohort looks similar, at least so far, to the behavior observed for members of older cohorts at comparable ages.
Tunga Kantarc, Arthur van Soest, Tilburg University: Effects of Partial and No Retirement on Health in the United States. Some studies find that retirement yields a loss in cognitive skills while others find that retirement preserves physical health. We study the amount of work hours that deteriorates or preserves the physical or mental health conditions of the elderly between 50 and 75 years old in the last eight waves (1994-2008) of the Health and Retirement Study. Deteriorating health conditions can cause employees to work fewer hours and therefore bias the effect of working part-time or full-time on health outcomes. Retirement eligibility ages are used as instruments for part-time or full-time work decisions. We also control for, possibly health related, unobserved heterogeneity across the individuals. We find that part-time and full-time workers report worse overall health and memory than full-time retirees. On the other hand, part-time and full-time workers have a much lower body weight, and part-time white collar workers have a much better word recall score. Part-time and full-time workers are also less prone to depression. We also find that health status of the elderly responds to working part-time much more than it responds to working full-time. This result suggests that the effect of the number of hours worked on health outcomes is nonlinear.
Mette Gørtz, EJA: Early retirement in the day-care sector: the role of working conditions and health. This article studies the role of working conditions and health for elderly female day-care teachers’ decision to enter early retirement. Entry into retirement is analysed in a duration framework that allows for unobserved heterogeneity in the baseline hazard. Data are from a Danish longitudinal data set based on administrative register records for 1997–2006. Working conditions are measured by four indicators. First, work pressure is measured by the child-to-teacher ratio, which varies across municipalities and over time. Second, working conditions are measured by the proportion of children with a problematic social background. Third, the share of trained teachers is considered an indicator of working conditions. And fourth, the size of the institution is assessed as an indicator of working conditions. Regressions in a duration model framework show that there is no significant relationship between the child-to-teacher ratio or the size of the institution and early retirement. However, working conditions measured by the social background of the children and the share of trained day-care teachers have a significant effect on the probability of early retirement. Finally, a poor health condition is associated with a higher propensity to enter early retirement.
Damian Paletta, Dionne Searcey, WSJ: Jobless Tap Disability Fund. The prolonged economic slump has fueled a surge in applications for Social Security disability benefits, with many desperate Americans seeking refuge in the program as a last resort after their unemployment insurance and savings run out. Two new studies, one of them co-authored by the White House's top economist, show a correlation between when people seek Social Security disability payments and when their unemployment benefits are exhausted. Some economists say that connection shows many people now view the system as an extended unemployment program
Eva Garcia-Moran, Zoe Kuehn, European University Institute: With Strings Attached: Grandparent-Provided Child care, Fertility, and Female Labor Market Outcomes. Grandparents are an important source of child care. According to data from the 2nd wave of the Survey of Health, Ageing and Retirement in Europe (SHARE), between 23% (Denmark) and 70% (Italy) of grandparents take care of their grandchildren age ten or younger on a daily or weekly basis. In the Netherlands, Belgium, and Switzerland more than 40% of grandparents take care of their small grandchildren each week, while in Italy, Greece, and Poland more than 40% of grandparents provide daily care for grandchildren age ten or younger. Similar to any other form of child care, availability of grandparent-provided child care affects fertility and labor market decisions of women positively. We find that women in Germany, residing close to parents or in-laws are more likely to have children and that as mothers they are more likely to hold a regular part-or fulltime job.
Axel H. Börsch-Supan, MEA: Entitlement Reforms in Europe: Policy mixes in the current pension reform process. Current costs are high, and the pressures will increase due to population aging and negative incentive effects. This paper focuses on the pension reform process in Europe. It links the causes for current problems to the cures required to make the pay-as-you-go entitlement programs in Continental Europe sustainable above and beyond the financial crisis. It discusses examples which appear, from a current point of view, to be the most viable and effective options to achieve successful changes in the entitlement system. There is no single policy prescription that can solve all problems at once. Reform elements include a freeze in the contribution and tax rates, an indexation of benefits to the dependency ratio, measures to stop the current trend towards early retirement, an adaptation of the normal retirement age to increased life expectancy, and more reliance on private savings – elements of a sustainable but complex multipillar system of pensions and similar entitlement programs.
Rob Euwals, Elisabetta Trevisan, CPB: Early Retirement and Financial Incentives: Differences Between High and Low Wage Earners. This paper investigates the impact of financial incentives on early retirement behaviour for high and low wage earners. Using a stylized life-cycle model, we derive hypotheses on the behaviour of the two types. We use administrative data and employ two identification strategies to test the predictions. First, we exploit exogenous variation in the replacement rate over birth cohorts of workers who are eligible to a transitional early retirement scheme. Second, we employ a regression discontinuity design by comparing workers who are eligible and non-eligible to the transitional scheme. The empirical results show that low wage earners are, as predicted by the model, more sensitive to financial incentives. The results imply that low wage earners will experience a stronger incentive to continue working in an optimal early retirement scheme.
Malene Kallestrup-Lamb, Aarhus University: The Role of the Spouse in Early Retirement Decisions for Older Workers. Instead of considering dual retirement we recognize the importance of the spouse in the early retirement decision by assessing the effect of a rich number of spousal variables. Given the grouped nature of the data we set up a semi-parametric single risk grouped duration proportional hazard model accounting for right censoring and allows for time-varying covariates, a nonparametric baseline and unobserved heterogeneity. We find that spousal characteristics do influence the retirement decision and significant gender asymmetries also exist in the effects of spouse's characteristics.
Garry F. Barrett, Milica Kecmanovic, University of Sydney: Subjective Well-being in Retirement: Evidence from HILDA. This research examines individual's self-reported changes in standard of living, financial security, and overall happiness over the transition to retirement. It is found subjective wellbeing SWB either improves or remains constant for the large majority of individuals as retire from the labour force. However, there are significant disparities in changes in well-being with retirement. In particular, the subset of individuals who are forced to retire early due to job loss or their own health, and who find their income in retirement is much less than expected, report marked declines in their well-being in retirement. This research also makes a methodological contribution by examining the accuracy of relative SWB measures. For the subset of individuals who retire after 2001, we use the longitudinal information in HILDA to assess the reliability of the retrospective reports of changes in SWB with contemporaneous responses.
2 december 2011
Barry Bosworth, R. Kent Weaver, CRR: Social Security on Auto-Pilot: International Experience with Automatic Stabilizer Mechanisms. As the baby boom generation enters retirement, a long-forecast funding crisis of the Social Security system is about to become a reality. Many other high-income countries are faced with similar financial problems with their public pension systems. Some of those countries have adopted legislative measures to reduce their funding deficits, and a few have included automatic adjustment mechanisms by which staged adjustments would be made in either benefits or revenues without the need for new legislation. We examine the cases of automatic stabilizer mechanisms (ASMs) in
Canada, Sweden, Germany and , with the former two being relatively successful examples, while the latter two are cases of ASMs that were more problematic. Drawing on these international examples, we examine various automatic mechanisms that could be implemented in the Italy . We consider three reforms: increase in the retirement age, adoption of a chained Consumer Price Index, and adjustment of the indexation of the taxable wage ceiling so as to stabilize the ratio of taxable to covered wages at its 1983 value of 90 percent. Together, these three reforms would reduce the 75-year actuarial deficit to about ½ percent of taxable wages. We conclude, though, that until the current deficit is fully eliminated, an ASM aimed at maintaining financial balance would not make sense for the Social Security program. However, the international experience does offer a number of lessons for future reforms of the United States retirement system. U.S.
Priscilla D. Allen, Waldo C. Klein, APD: Productive Challenges and Opportunities in Work and Retirement: Background from the USA. There is no doubt that population aging raises enormous economic, social, and political considerations, not the least of which is the necessity to promote the rights, opportunities, and productivity of older workers in a society. In fact, Peterson (2002) suggests that the rights and opportunities of older workers may be one of the most challenging policy issues of the 21st century. The upcoming years will determine how the labor market entices, engages, and retains older workers, requiring a philosophical shift in viewing the employment of older workers. The perception that older workers are more expensive and time-consuming is false, and capturing the unused labor force capacity of older adults is something that is of global interest (Gruber and Wise, 2007).
Hans Fehr, Manuel Kallweit, Fabian Kindermann, University of Würzburg: Should Pensions Be Progressive? Yes, at Least In Germany! Recent reforms that aim at reducing the upcoming burdens of population aging might seriously harm low income individuals. An increase in old-age poverty and disability will be the result. Under this prospect, the present paper quantitatively characterizes the optimal progressivity of unfunded pension systems in an overlapping generations model with idiosyncratic income, disability and longevity risk as well as endogenous labor supply at the intensive and extensive margin. Focusing on the German pension system, our model features the most recent demographic projections and distinguishes three skill classes with skill-dependent risk profiles. Starting from a baseline path that reflects a purely earnings related pension system, we increase the degree of progressivity and compute the resulting macroeconomic, welfare and efficiency effects. For our most preferred parametrization we find an optimal flat-rate pension share of 40 percent. This indicates that in
recent reforms that aim at raising retirement age and cutting benefit levels should be complemented by increases in pension progressivity, since improved insurance provision dominates higher labor supply distortions. In addition, we also find that reductions in the benefit level (i.e. privatization) will only reduce economic efficiency. Germany
Goulão, Catarina, Gouveia, Miguel, Toulouse School of Economics: Are we doing enough to discourage early retirement? Increasing the effective retirement age contributes to the sustainability of pension systems. However, oftentimes policies aiming at rising employment rates of older workers fall short in delaying retirement. This seems to be the case with retirement age flexibility reforms in
. We analyze the recent Portuguese history of incentives to retire. For 1990-2006 we find that individuals faced very high implicit taxes on working with the result that half the workers had already left the labour force before age 65. We then look at the Social Security reforms in 2007 and find that the incentives to continue working became even smaller than they already were. We conclude that increasing the labour supply of older workers in a system with flexible retirement age needs policies with more aggressive use of penalties and bonuses than what decision makers were willing to accept. Portugal
Craig Berry, ILCUK: Gradual retirement and pensions policy. It is too often assumed that retirement is a one-off event, rather than a process. Yet there is increasing evidence that we are moving towards a process of ‘gradual retirement”. Ca 40 per cent of people would consider delaying their retirement if they could defer the state pension in return for higher payments later; yet 59 per cent are unaware that this option is already available. Ca 42 per cent of people would consider delaying their retirement if they could combine income from a work-based/employer pension and their current job; yet 66 per cent are unaware that this option is already available to many employees.
Roel M. W. J. Beetsma, Alessandro Bucciol, CESifo: Risk Sharing in Defined-Contribution Funded Pension Systems. This paper explores the introduction of collective risk-sharing elements in defined contribution pension contracts. We consider status-contingent, age-contingent and asset contingent risk-sharing arrangements. All arrangements raise aggregate welfare, as measured by equivalent variations. While working individuals hardly benefit or may even lose, retirees experience substantial welfare gains. An increase in the tax deductability of pension contributions can be beneficial for working cohorts, but comes at the cost of a reduction in aggregate welfare due to efficiency losses.
18 november 2011
James M. Poterba, Steven F. Venti, David A. Wise, NBER: The Composition and Draw-down of Wealth in Retirement. Even if households used all of their financial assets inside and outside personal retirement accounts to purchase a life annuity, only 47 percent of households between the ages of 65 and 69 in 2008 could increase their life-contingent income by more than $5,000 per year. At the upper end of the wealth distribution, however, a substantial number of households could make large annuity purchases. Many households appear to treat housing equity and non-annuitized financial assets as “precautionary savings,” tending to draw them down only when they experience a shock such as the death of a spouse or a period of substantial medical outlays. Because home equity is often conserved until very late in life, for many households it may provide some insurance against the risk of living longer than expected.
KT Whelan et al, IZA: Adverse Selection and Incentives in an Early Retirement Program. We evaluate potential determinants of enrollment in an early retirement incentive program for non-tenure-track employees at a large university. Using administrative records on the eligible population of employees not covered by collective bargaining agreements, historical employee count and layoff data by budget units, and public information on unit budgets, we find dips in per-employee finances in a budget unit during the application year and higher recent per employee layoffs were associated with increased probabilities of eligible employee program enrollment. Our results also suggest that, on average, employees whose salaries are lower than we would predict given their personal characteristics and job titles were more likely to enroll in the early retirement program. To the extent that employees’ compensation reflect their productivity, as it should under a pay system in which annual salary increases are based on merit, this finding suggests that adverse selection was not a problem with the program. That is, we find no evidence that on average the “most productive” employees took the incentive.
Alicia H. Munnell, Francesca Golub-Sass, Anthony Webb, CRR: How much to save for a secure retirement. People often ask how much individuals have to save for a secure retirement. This exercise takes an 80-percent replacement rate as the goal, assumes Social Security benefits remain as promised under current law, then calculates the required saving rates for individuals at different earnings levels, at different starting and ending ages, and at different rates of return. The basic message: starting early and working longer are far more effective levers for gaining a secure retirement than earning a higher return. This strategy of saving for a longer period of time is especially effective given the greater risk that comes from attempting to earn that higher return.
Yves Carrière, Diane Galarneau, StatCan: Delayed retirement: A new trend? The influence of the age structure of workers on the average retirement age makes the average retirement age a poor indicator of recent changes in retirement behaviour. A more representative indicator of the retirement decisions of Canadians can be constructed on the basis of methods used to calculate life expectancy. This expected working-life indicator shows a significant increase in delayed retirement starting in the mid-1990s. In 2008, a 50-year-old Canadian could expect to be working for 16 years, compared to 14 years in 1977.
Richard Fry, D’Vera Cohn, Gretchen Livingston, Paul Taylor, Pew Research: The Rising Age Gap in Economic Well-Being. Households headed by older adults have made dramatic gains relative to those headed by younger adults in their economic well-being over the past quarter of a century, according to a new
analysis of a wide array of government data. In 2009, households headed by adults ages 65 and older possessed 42% more median1 net worth (assets minus debt) than households headed by their same-aged counterparts had in 1984. During this same period, the wealth of households headed by younger adults moved in the opposite direction. In 2009, households headed by adults younger than 35 had 68% less wealth than households of their same-aged counterparts had in 1984. Pew Research Center
28 oktober 2011
Maarten Lindeboom, Henrik Lindegaard Andersen, Danish Institute of Governmental Research: The Impact of Early Retirement on Health. This paper investigates the impact of early retirement on the health after retirement. Although the correlation between retirement and mental health is negative, this is not necessarily a causal impact because retirement may be endogenous to health. We address the endogeneity using two sources of exogenous variation in retirement; the first arises because of a reform of the early retirement scheme, and the second is due to an eligibility discontinuity in age. Our results are based on a large Danish administrative dataset for everyone born 1936-42 (N = 376, 909). We measure health outcomes by purchase of different types of prescription medicine and mortality. Our results support prior findings in the literature: early retirement has no effect on the medicine purchase risk in either short or long run.
Pierre Lefebvre, Philip Merrigan, Pierre-Carl Michaud, IZA: The Recent Evolution of Retirement Patterns in Canada. Using data from three waves of the General Social Survey on retirement and older workers (1994, 2002 and 2007), we document the evolution of retirement patterns over the last three decades. We combined the analysis of retirement ages of actual retirees with data on expected retirement ages of current workers to create a longer perspective on changes in retirement behaviour in
. We also investigate trends in work after retirement. Our findings are in line with findings from other countries. There is an upward trend in retirement ages which likely started around year 2000 for cohorts born after 1945. This trend contrasts with the slow decline in retirement ages observed prior to the end of the millennium. While the downward trend was likely due to factors such as the offering of early retirement programs in private firms, the upward trend is likely to be caused by a wider variety of sources, including better health, less pervasive defined benefit pensions and in general ! less generous pensions. Canada
David Neumark, Joanne Song, NBER: Do Stronger Age Discrimination Laws Make Social Security Reforms More Effective? Supply-side Social Security reforms to increase employment and delay benefit claiming among older individuals may be frustrated by age discrimination. We test for policy complementarities between supply-side Social Security reforms and demand-side efforts to deter age discrimination, specifically studying whether stronger state-level age discrimination protections enhanced the impact of the increases in the Social Security Full Retirement Age (FRA) that occurred in the past decade. The evidence indicates that, for older individuals who were "caught" by the increase in the FRA, benefit claiming reductions and employment increases were sharper in states with stronger age discrimination protections.
Philip Sauré, Hosny Zoabi, Swiss National Bank: Retirement Age Across Countries: The Role of Occupations. Cross-country variation in effective retirement age is usually attributed to institutional differences that affect individuals’ incentives to retire. This paper suggests a different approach to explain this variation. Since working individuals in different occupations naturally retire at different ages, the composition of occupations within an economy matters for its average effective retirement age. Using U.S. Census data we infer the average retirement age by occupation, which we then use to predict the retirement age of 38 countries, using the occupational distribution of these countries. Our findings suggest that the differences in occupational composition explain up to 38% of the observed cross-country variation in retirement age.
Kristine Brown, Ron Laschever: When They’re Sixty-Four: Peer Effects and the Timing of Retirement. University of Illinois. This paper examines the effect of peers on an individual’s likelihood of retirement using an administrative dataset of all retirement-eligible
teachers for the years 1998-2001. We use two large unexpected pension reforms that differentially impacted financial incentives within and across schools to construct an instrument for others’ retirement decisions. Controlling for individual and school characteristics, we find that the retirement of an additional teacher in the previous year at the same school increases a teacher’s own likelihood of retirement by 2 percentage points. We then explore some possible mechanisms through which this effect operates. Los Angeles
30 september 2011
2 september 2011
Jinjing Li, Cathal O'Donoghue, IZA: Incentives of Retirement Transition for Elderly Workers: An Analysis of Actual and Simulated Replacement Rates in Ireland. Retirement behaviours and elderly poverty issues have been the subject of much attention and discussion in recent years as most countries are facing a rapidly ageing society.
enjoys a relatively young population compared with other European countries, but is also struggling with increasing fiscal pressures. This paper analyses the retirement pattern and the replacement rate observed in Ireland Ireland using the Living in panel dataset. Since traditional empirical estimations may have selection bias issues as people with low replacement rates may not choose to retire, the paper adopts a combined method with both synthetic household simulation and empirical estimates. The study reveals the social economic attributes patterns associated with the replacement rates and retirement behaviours, and explores the heterogeneities of replacement rates among retirees. Ireland
Sagiri Kitao, NY Fed: Sustainable Social Security: Four Options. This paper presents four policy options to make Social Security sustainable under the coming demographic shift: 1) increase payroll taxes by 6 percentage points, 2) reduce the replacement rates of the benefit formula by one-third, 3) raise the normal retirement age from sixty-six to seventy-three, or 4) means-test the benefits and reduce them one-to-one with income. While all four policies achieve the same goal, their economic outcomes differ significantly. Options 2 and 3 encourage own savings, and capital stock is more than 10 percent higher than in the other two options. The payroll tax increase in option 1 discourages work effort, but means-testing the benefits as outlined in option 4 yields the worst labor disincentives, especially among the elderly.
26 augusti 2011
Ronald Lee, Andrew Mason, IMF: The Price of Maturity. Between 2010 and 2050 declining support ratios are expected to depress economic growth by 0.7 percent a year in
Japan, Germany, and and by 0.8 percent a year in Taiwan Province of China. In the Spain , which is aging more slowly due to higher fertility, large net inflows of immigrants, and lower life expectancy, economic growth will be depressed by only 0.3 percent a year. Changes in the support ratio may also curtail economic growth in United States . Between 1972 and 2012 the support ratio is projected to increase by 0.8 percent a year, but is projected to decline by 0.4 percent a year between 2012 and 2050. China
Zheng Liu, Mark M. Spiegel, San Francisco Fed: Boomer Retirement: Headwinds for U.S. Equity Markets? Historical data indicate a strong relationship between the age distribution of the
population and stock market performance. A key demographic trend is the aging of the baby boom generation. As they reach retirement age, they are likely to shift from buying stocks to selling their equity holdings to finance retirement. Statistical models suggest that this shift could be a factor holding down equity valuations over the next two decades. U.S.
Clemens Hetschko, Andreas Knabe, Ronnie Schöb, CESIFO: Changing Identity: Retiring from Unemployment. Using data from the German Socio-Economic Panel from 1984-2009, we follow persons from their working life into their retirement years and find that, on average, employed people maintain their life satisfaction upon retirement, while long-term unemployed people report a substantial increase in their life satisfaction when they retire. These results are robust to controlling for changes in other life circumstances and suggest that retiring is associated with a switch in the relevant social norms that causes an increase in identity utility for the formerly unemployed. This is supportive of the idea that, by including identity in the utility function, results from the empirical life satisfaction literature can be reconciled with the economic theory of individual utility.
Paul Bingley, Nabanita Datta Gupta, Peder J. Pedersen, NBER: Disability Programs, Health and Retirement in Denmark since 1960. This paper investigates the interaction between measures of health, disability pension take up and labor market performance in
by charting their development over time and by examining how they are affected by key policy reforms in the area of early retirement. The main emphasis is on the long-run development of the Social Disability Pension (SDP) program, and whether it concurs with trends in population health based on mortality indicators (both overall and cause-specific) and with self-reported health. A strong relationship is found between labor force activity measures and non-health related programs for early retirement for those 60 and older. However, no clear relationship is evident between SDP take up and the health indicators. One reason for the lack of a correlation is most probably that SDP is "on its own track" due to program innovations and reforms creating competing risks or program substitution especially for the 50+ population. Denmark
Arthur van Soest, Tatiana Andreyeva, Arie Kapteyn, James P. Smith, NBER: Self Reported Disability and Reference Groups. Social networks and social interactions affect individual and social norms. We develop a direct test of this using Dutch survey data on how respondents evaluate work disability of hypothetical people with some work related health problem (vignettes). We analyze how the thresholds respondents use to decide what constitutes a (mild or more serious) work disability depend on the number of people receiving disability insurance benefits (DI) in their reference group. We find that reference group effects are significant and contribute substantially to an explanation of why self-reported work disability in the
Netherlands is much higher than in, for example, the . US
19 augusti 2011
Kiyohiko G. Nishimura, BoJ: Population Ageing, Macroeconomic Crisis and Policy Challenges. There is a remarkable correlation between asset market bubbles that cause macroeconomic crisis and demographical changes. In Figures 1.1 and 1.2, I show
Japan, the United States, Spain and as examples of countries affected by the financial crisis2. In these countries, the formation of bubbles in asset markets seems to coincide with a growing inverse dependency ratio, which is the ratio of the working population to the non-working (dependent) population. Meanwhile, busts in asset markets seem to happen when the inverse dependency ratio declines noticeably. Ireland
Darrell Worthy, Psychological Science: Decision Making Changes With Age – and Age Helps! We make decisions all our lives—so you’d think we’d get better and better at it. Yet research has shown that younger adults are better decision makers than older ones. Some
psychologists, puzzled by these findings, suspected the experiments were biased toward younger brains. So, rather than testing the ability to make decisions one at a time without regard to past or future, as earlier research did, these psychologists designed a model requiring participants to evaluate each result in order to strategize the next choice, more like decision making in the real world. The results: The older decision makers trounced their juniors. Older adults are better at evaluating the immediate and delayed benefits of each option they choose from. They are better at creating strategies in response to the environment. Texas
Rob Euwals, Annemiek van Vuren, Daniel van Vuuren: The Decline of Early Retirement Pathways in the Netherlands: An Empirical Analysis for the Health Care Sector. Early retirement schemes and disability insurance in the
have both been reformed during the past decades. The reforms have increased incentives to continue working and have decreased the substitution between early retirement and disability. This study investigates the impact of the reforms on labour market exit probabilities. We use administrative data for workers in the Dutch health care sector between 1999 and 2006. We estimate a multinomial Logit model for transitions out of the labour force. The empirical results suggest that the reforms have been effective, as the labour market participation rate of the elderly has increased. The concept of substitute pathways into retirement seems less relevant today as the results confirm that disability insurance is closed off as an early retirement exit route. Netherlands
David E. Bloom, David Canning, Günther Fink, NBER: Implications of Population Aging for Economic Growth. The share of the population aged 60 and over is projected to increase in nearly every country in the world during 2005-2050. Population ageing will tend to lower both labor-force participation and savings rates, thereby raising concerns about a future slowing of economic growth. Our calculations suggest that OECD countries are likely to see modest – but not catastrophic – declines in the rate of economic growth. However, behavioral responses (including greater female labor force participation) and policy reforms (including an increase in the legal age of retirement) can mitigate the economic consequences of an older population.
David M. Cutler, Mary Beth Landrum, NBER: Dimensions of Health in the Elderly Population. Our data are from the Medicare Current Beneficiary Survey, 1991-2007. We show that 19 measures of health can be combined into three broad categories: a first dimension representing severe physical and social incapacity such as difficulty dressing or bathing; a second dimension representing less severe difficulty such as walking long distances or lifting heavy objects; and a third dimension representing vision and hearing impairment. These dimensions have changed at different rates over time. The first and third have declined rapidly over time, while the second has not. The improvement in health is not due to differential mortality of the sick or a new generation of more healthy people entering old age. Rather, the aging process itself is associated with less rapid deterioration in health. We speculate about the factors that may lead to this.
Jeffrey B. Liebman, Erzo F.P. Luttmer, NBER Would People Behave Differently If They Better Understood Social Security? Evidence From a Field Experiment. This paper presents the results of a field experiment in which a sample of older workers was randomized between a treatment group that was given information about key Social Security provisions and a control group that was not. The experiment was designed to examine whether it is possible to affect individual behavior using a relatively inexpensive informational intervention about the provisions of a public program and to explore the mechanisms underlying the behavior change. We find that our relatively mild intervention (sending an informational brochure and an invitation to a web-tutorial) increased labor force participation one year later by 4 percentage points relative to the control group mean of 74 percent and that this effect is driven by a 7.2 percentage point increase among female subjects. The information intervention increased the perceived returns to working longer, especially among female respondents, which suggests that the behavioral response can be a
12 augusti 2011
Stefan Staubli, Josef Zweimüller, IZA: Does Raising the Retirement Age Increase Employment 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.
Jinjing Li, Cathal O'Donoghue, IZA: Retirement Choice Simulation in Household Settings with Heterogeneous Pension Plans. This paper estimates a structured life cycle model of family retirement decision using a unique historical dataset back simulated from Living in
survey. Our simulation shows that increasing the minimum age for state pension entitlement to 70 would only delay the retirement by less than 2 years according to the individual based model. When we consider the intra-household bargaining and the higher preference of leisure found in the dual career households, the effect of postponing retirement further declines. The result suggests barely postponing the minimum retirement age for state pension without redefining the occupation and private pension rules will only have limited impact for household retirement behaviour in Ireland . Ireland
Mitchell A. Orenstein, ISSA Review: Pension privatization in crisis: Death or rebirth of a global policy trend? From 1981 to 2007, more than thirty countries worldwide fully or partially replaced their pre-existing pay-as-you-go pension systems with ones based on individual, private savings accounts in a process often labelled “pension privatization”. After the global financial crisis, this trend was put on hold for economic, ideational, and institutional reasons, despite a rise in critical indebtedness that has facilitated pension privatization in the past. Is the global trend towards pension privatization dead or in the process of being reborn, perhaps in a somewhat different form? Several recent trends point to rebirth as policy-makers scale back public and private pension systems, attend to minimum pensions and “nudge” rather than mandate people to save for retirement.
Peter Haan, Victoria L. Prowse, IZA: Longevity, Life-Cycle Behavior and Pension Reform. 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.
Giorgio Brunello, Margherita Fort, Nicole Schneeweis, Rudolf Winter-Ebmer, IZA: The Causal Effect of Education on Health: What is the Role of Health Behaviors? In this paper we investigate the contribution of health related behaviors to the education gradient, using an empirical approach that addresses the endogeneity of both education and behaviors in the health production function. We apply this approach to a multi-country data set, which includes 12 European countries and has information on education, health and health behaviors for a sample of individuals aged 50+. Focusing on self reported poor health as our health outcome, we find that education has a protective role both for males and females. When evaluated at the sample mean of the dependent variable, one additional year of education reduces self-reported poor health by 7.1% for females and by 3.1% for males. Health behaviors – measured by smoking, drinking, exercising and the body mass index – contribute to explaining the gradient. We find that the effects of education on smoking, drinking, exercising and eating a proper diet account for at most 23% to 45% of the entire effect of education on health, depending on gender.
Alessandra Cataldi, Stephan Kampelmann, Francois Rycx, IZA: Does It Pay to Be Productive? The Case of Age Groups. Using longitudinal matched employer-employee data for the period 1999-2006, we investigate the relationship between age, wage and productivity in the Belgian private sector. More precisely, we examine how changes in the proportions of young (16-29 years), middle-aged (30-49 years) and older (more than 49 years) workers affect the productivity of firms and test for the presence of productivity-wage gaps. Results (robust to various potential econometric issues, including unobserved firm heterogeneity, endogeneity and state dependence) suggest that workers older than 49 are significantly less productive than prime age and young workers. In contrast, the productivity of middle-age workers is not found to be significantly different compared to young workers. Findings further indicate that average hourly wages within firms increase significantly and monotonically with age. Overall, this leads to the conclusion that young workers are paid below their marginal productivity while older workers appear to be "overpaid" and lends empirical support to theories of deferred compensation over the life-cycle (Lazear, 1979).
I Barnett, D Ogilvie1, C Guell1, JECH: Ageing and older people. Physical activity and the transition to retirement. Despite a general awareness of the benefits of physical activity and an increase in recreational activities, overall physical activity appears to decline with the transition to retirement. This systematic review can inform the development of interventions aimed at maintaining and increasing physical activity at retirement.
Olli Pietiläinen, Mikko Laaksonen, Ossi Rahkonen, Eero Lahelma, PLoS O: Self-Rated Health as a Predictor of Disability Retirement – The Contribution of Ill-Health and Working Conditions. Self-rated health and the covariates were obtained from the Helsinki Health Study baseline mail surveys in 2000–2002 conducted among municipal employees aged 40–60 years. Data for disability retirement events along with diagnoses were linked from the Finnish Centre for Pensions, with a follow-up by the end of 2010.Self-rated health is a strong predictor of all-cause disability retirement as well as disability retirement due to mental disorders and musculoskeletal diseases. The association can be partly explained by ill-health and working conditions, but self-rated health is likely to have predictive power independent of these. In our study prior-ill health was well covered by indicators based on both questionnaire and register-based data sources. Poor self-rated health provides a useful marker for increased risk of work disability and subsequent disability retirement.