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Università degli Studi di Salerno |
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Economics
of Ageing in Europe (AGE)
RTN
European
Program HPRN-CT-2002-00235
The Fifth Workshop of the RTN on the Economics of Aging in Europe was held in Tilburg on 8-9 October 2004, following the Mid-Term Review Meeting of October 7. The Conference organizers were Jan Van Ours and Frederick Vermeulen of Tilburg University.
The first day of the workshop featured presentations of papers of researchers of the AGE Network. The first paper was Redistribution in the Italian Pension System, presented by Flavia Coda Moscaiola and discussed by Amedeo Spataro. The paper analyzes the major reforms of the Italian pension system during the past decade, moving from a defined benefit system to a defined contribution one.
The second paper was Latent Processes and Observed Outcomes: Health Capital, Self-reported Health and Mortality by Florian Heiss and discussed by Rob Alessie. The paper points out that the time dimension of the typical panel data used in microeconometric analyses is usually small compared to the cross-section dimension. The paper discusses the application of a class of nonlinear models, arguing that for many microeconometric applications, state-space models provide a very useful and flexible approach. In the application the paper studies the different specifications for the joint evolution of health and mortality risk and shows that the proposed model outperforms other approaches, like random effects models, in terms of model fit and out of sample prediction.
The third paper presented was Economic Policy in Aging Economies with Immigration by Gregorios Siourounis, and discussed by Raquel Fonseca. The paper develops an overlapping generations model to assess the effect of increased immigration. It shows that in aging economies the monetary authority needs to interest rates at higher levels than under no immigration. It also shows that an exogenous shock in immigration of an aging economy limits the need for monetary policy intervention relative to an aging economy with no immigration.
The next paper presented was Residential Mobility and the Housing Adjustment of the Elderly: Evidence from the ECHP for 6 European Countries, by Konstantinos Tatsiramos and discussed by Jesus Carro. The paper investigates the determinants of residential mobility for the elderly and the housing adjustment of those who move, employing individual data from the European Community Household Panel. It also analyzes the housing tenure transitions of those who move estimating a competing risk housing duration model distinguishing between transitions to ownership and to tenancy.
The afternoon of the first day was devoted to training lectures for the young researchers of the AGE Network. The first invited lecture was held by David Blau on Retirement and Consumption in a Life Cycle Model. Consumption expenditure declines sharply at the time of retirement for many households. Some analysts argue that this is inconsistent with the behavior implied by forward-looking life-cycle models. However, most studies of saving for retirement take the timing of retirement as given, and analyze consumption behavior conditional on retirement. Blau proposes a life cycle model in which both consumption and employment are choices. The model incorporates key constraints facing older households, including Social Security retirement and disability programs, employer pensions, stochastic earnings and asset returns processes, layoff risk, job offer risk, and health and mortality risk. The model is solved and calibrated to the behavior of a cohort of U.S. men, using data from the Health and Retirement Study. The main finding is that there is a drop in consumption at retirement in simulations of the model.
The second lecture was given by John Karl Scholz on Are Americans Saving 'Optimally' for Retirement?. The lecture examined the degree to which Americans are saving optimally for retirement. Our standard for assessing optimality comes from a life-cycle model that incorporates uncertain lifetimes, uninsurable earnings and medical expenses, progressive taxation, government transfers, and pension and social security benefit functions derived from rich household data. Scholz solves every household’s decision problem from death to starting age and then uses the decision rules in conjunction with earnings histories to make predictions about wealth in 1992. The results, based on data from the Health and Retirement Study, are striking. The model is capable of accounting for more than 80 percent of the 1992 cross-sectional variation in wealth. Fewer than 20 percent of households have less wealth than their optimal targets, and the wealth deficit of those who are under-saving is generally small.
The second days of the workshop started with the paper presented by Laura Romeu on Compression of Morbidity and Labor Supply of the Elderly. The paper was discussed by Mette Christensen. The paper tests whether there is evidence of compression of morbidity in the last decades using the HRS and to analyze which are the effects on labor supply of the elderly. The paper uses Grossmann’s framework to explain differences among cohorts in health status at given ages.
The following paper was Non-exclusivity and adverse selection: an application to the annuity market, by Gwenael Piaser and discussed by Dimitris Mavridis. Using a common agency framework, the paper characterizes possible equilibria when annuity contracts are not exclusive. The paper discussed theoretical and empirical implications of these equilibria, and shows that at equilibrium prices are not linear.
The third paper presented was What Triggers Early Retirement? Results from Swiss Pension Funds, by Federica Teppa and discussed by Kristin J. Kleinjans. The paper studies the determinants of early retirement, in particular the role of lifetime income and family status, using individual data from a selection of Swiss pension funds. The findings suggest that affordability is a key determinant in retirement decisions: the affluent tend to leave the work force earlier. The paper also finds sizeable differences in retirement behavior across marital status. These may be explained by a constrained rational choice based on differential mortality and the desire of couples to coordinate their entry into retirement.
The fourth paper was How Much Wealth Accumulation and Composition Depends on Individual Preferences? by André Masson. The paper proposed a new survey to elicit information on wealth and bequests, and was discussed by Mario Padula. The final paper of the morning session was Three Alternative Approaches to Testing the Permanent Income Hypothesis in Panels, by Laura Serlenga, and discussed by Martin Browning. The paper considers three alternative approaches to testing the Permanent Income Hypothesis (PIH) in the context of dynamic panels: the aggregate consumption approach, the Euler equation approach and finally Friedman (1957)’s original characteristic tests. The empirical evidence, using the British Household Panel Survey (BHPS) data, finds support for the PIH.
The first paper of the afternoon session was Health Insurance and Job Mobility: Evidence from Clinton’s Second Mandate by Anna Sanz de Galdeano. The paper was discussed by Pierre-Carl Michaud. The paper analyzes data from the 1996 panel of the Survey of Income and Program Participation to investigate the effect of employer-provided health insurance (EPHI) on job mobility from 1996 to 2000. It estimates the effect of EPHI on four-month job turnover. The paper finds that holding EPHI induces substantial mobility reductions for all demographic groups, ranging from 31% to 58%.
The second paper presented was Income Expectations and Outcomes at Mandatory Retirement in the Netherlands by Mauro Mastrogiacomo and was discussed by Juergen Maurer. According to the life cycle model the drop in income at retirement should be anticipated and realized. The paper shows that this is the case in the Netherlands, and that it is more evident at the age preceding the eligibility to social security, when individuals are already perfectly informed about their retirement.
The final paper of the workshop was Unfolding Brackets, Anchoring and Acquiescence Bias in Panel Data Models for Household Asset Holdings by Arthur van Soest. The paper was discussed by Yannis Bilias. The paper develops panel data models to analyze ownership and amount held of shares of stocks and stock mutual funds, incorporating selection into ownership and non-response on the amount question. The model is applied to stock holdings of elderly US households, using six waves of the Health and Retirement Study, 1992-2002.