stayers as workers and savers the classic selection effect posits that deferred wages attract stayers the results in this paper suggest an alternative explanation deferred wage contracts attract savers all else constant savers are better workers than nonsavers a firm naturally works harder to retain better workers and thus is led to pay them higher wages thereby encouraging savers to remain in the firm s employ this process creates a confluence of deferred wages high levels of compensation and low quit propensities in this explanation staying is merely the result of a selection process and not the underlying factor that drives selection

on the world economic elite economic elites have not received enough attention in the economic literature the obvious reason is limited access to information this paper seeks to contribute to contemporary knowledge on elites in two ways first it employs a new unique data set on the world economic elite covering 2002 2014 to develop a method of measuring the degree of elite circulation second it provides a theoretical explanation of the observed facts the empirical finding is that the world economic elite is subject to a low degree of circulation despite increased globalization liberalization longterm economic growth and the recent great recession the core of the elite remains mostly unchanged our theory attempts to explain this fact by introducing the analytical distinction between market competition and elite competition which is a kind of meta competition thus the following relationship is derived from the theory the low level of elite circulation that is the low meta competition underlies the oligopolistic market structures that we observe in the real world

homeownership and economic performance of immigrants in germany this paper investigates the homeownership gap between native and immigrant households in germany paying particular attention to the assimilation process of immigrant households a double cohort model is derived which circumvents the identification problem for separating age period and cohort effects and accounts for differences in the effects the empirical findings suggest that immigrant households are less likely to own their primary residence than comparable native households moreover the duration of residence in germany does not affect the homeownership probability of immigrants indicating that an assimilation process in homeownership between native and immigrant households did not take place this result is largely consistent with the german immigration policy which has focused predominantly on short run economic needs and has neglected long run economic effects of immigration

rational heuristics expectations and behaviors in evolving economies with heterogeneous interacting agents we analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent based model populated by heterogeneous interacting firms agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change imperfect information coordination hurdles and structural breaks in these circumstances we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naive learning rules our results suggest that fast and frugal robust heuristics may not be a second best option but rather rational responses in complex and changing macroeconomic environments jel c63 d8 e32 e6 o4

social security pensions and retirement behavior within the family this paper estimates a structural model of family retirement using us data from the health and retirement study hrs it provides further insight into household retirement decision making and the reasons for interdependence in the retirement decisions of each spouse improvements in hrs data and matched employer provided pension histories allow more precise identification of key parameters governing interdependent behaviour within the household in an earlier study we found that interdependence was due to preferences rather than coordination of retirement incentives in the budget and in particular that it is not a correlation in preferences but the appearance of the spouse s retirement status in the husband s and wife s utility function that is largely responsible for coordination of retirement between spouses we now find that a measure of how much each spouse values being able to spend time in retirement with the other accounts for a good portion of that apparent interdependence for the wife the husband s retirement status influences her retirement decision only if she values spending time in retirement with her husband for husbands the effect of having the wife already retired on his retirement decision is roughly doubled if he enjoys spending time in retirement with his wife but there is some effect even if he does not this is consistent with our earlier findings that the husband is more influenced by having a retired spouse than the wife is the increase in the extent of the dependence of the wife s labour supply on the husband s retirement from our past work probably is traceable to better measurement of the opportunity set facing the husband in hrs data once estimated we use the model to investigate the labour supply effects of alternative social security policies examining the effect of dividing credit for earnings evenly between spouses or of basing social security benefits on the amounts accumulated in private accounts both policies change the relative importance of spouse and survivor social security benefits within the household and both raise the relative reward to work later in the life cycle the incentives created are modest and retirement responds accordingly nevertheless at some ages such as 65 there may be as much as a 6 increase in the old age work force under privatized accounts copyright 2004 john wiley sons ltd

did the elimination of mandatory retirement affect faculty retirement a special exemption from the 1986 age discrimination act allowed colleges and universities to enforce mandatory retirement of faculty at age 70 until 1994 we construct a survey that permits us to compare faculty turnover rates before and after the law changed at a large sample of institutions with defined contribution pension plans after the elimination of compulsory retirement the retirement rates of 70 and 71 year olds fell by two thirds and were comparable to rates of 69 year olds these findings indicate that u s colleges and universities will experience a rise in the number of older faculty over the coming years jel j26 i21

growth income inequality and fiscal policy what are the relevant trade offs we develop an endogenous growth model with elastic labor supply in which agents differ in their initial endowments of physical capital in this context the growth rate and the distribution of income are jointly determined we then examine the distributional impact of different ways of financing an investment subsidy policies aimed at increasing the growth rate result in a more unequal distribution of pre tax income consistent with the positive correlation between income inequality and growth observed in the recent empirical literature however there is no conflict between efficiency and equity if inequality is measured in terms of the distribution of welfare

portfolio choices of parents and their children as young adults asset accumulation by african american families the portfolio composition decision often is stylized as either a life cycle choice to allocate income to consumption or as a choice along a risk return locus with the locus derived from the underlying market equilibrium of asset returns and prices empirical work on household financial behavior has identified large differences in wealth levels and in portfoliocomposition choices of different demographic groups well beyond income and risk tolerance by far the most striking difference in this literature emerges when the population is subdivided by race for example given the strong performance of the u s equity market in the past decade portfolio choices of stocks have been key to wealth building yet africanamerican families have been less likely to have held stocks as of the mid 1980 s and less likely to have become shareholders over the period 1989 1994 erik hurst et al 1998 this paper attempts to resolve this puzzle by examining cross generational influences on current portfolio composition decisions

the illusory effects of saving incentives on saving the authors evaluate research on how tax based saving incentives iras and 401 k s affect saving previous research overstates the impact of the incentives on saving by failing to account for several issues households with saving incentives have stronger tastes for saving than others saving incentives have interacted with debt nonfinancial assets financial markets and pensions and saving incentives represent pretax balances whereas taxable accounts represent posttax balances accounting for these issues essentially eliminates the impact of saving incentives on saving the authors conclude that little if any of the contributions to existing saving incentives have raised saving

the labor force participation behavior of married women under conditions of constraints on borrowing this paper investigates the effect of a borrowing constraint on the labor force participation of married women the model developed here relaxes the assumption of perfect markets found in standard life cycle models we find evidence that married women s work in the market is positively related to the existence and extent of family borrowing restrictions we suggest that the failure to account for this constant in family borrowing may be the reason for the unexpected positive sign in most empirical studies of the effect of family assets on a wife s work

a new method of estimating risk aversion i show existing evidence on labor supply behavior places an upper bound on risk aversion in the expected utility model i derive a formula for the coefficient of relative risk aversion in terms of the ratio of the income elasticity of labor supply to wage elasticity and degree of complementarity between consumption and labor i bound the degree of complementarity using data on consumption choices when labor supply varies across states using labor supply elasticity estimates i find a mean estimate of 1 then show generating 2 requires that wage increases cause sharper labor supply reductions jel d81 j22

uk state pension deferral incentives and sustainability pay as you go state pension schemes such as that operated in the united kingdom face growing pressures from the rising old age dependency ratio and improvements to life expectancies alongside comp

another look at the role of the industrial structure of markets for international diversification strategies abstract this paper re examines the extent to which gains from international diversification are due to differences in industrial structure across countries recent papers by roll 1992 journal of finance 47 3 42 and heston and rouwenhorst 1994 journal of financial economics 36 3 27 investigate this issue and find conflicting evidence using a new database the dow jones world stock index with coverage in 25 countries and over 66 industry classifications we decompose comprehensively both country and industrial sources of variation we confirm that little of the variation in country index returns can be explained by their industrial composition we also uncover differences in the proportion of variation in industry index returns that is captured by country and industry factors and discuss the implications for global diversification strategies

health and schooling investments in africa this paper first outlines an organizing framework for considering how health and schooling affect labor productivity and growth and how household and community factors can in turn affect the demand for these human capital investments both cross country growth models and various aspects of microeconomic studies of individual productivity as related to education and health are discussed the conclusion offers some tentative leads for policy in this area based on existing research and an agenda for future research

optimal retirement with increasing longevity we develop an optimizing life cycle model of retirement with perfect capital markets we show that longer healthy life expectancy usually leads to later retirement but with an elasticity less than unity we calibrate our model using data from the us and find that over the last century the effect of rising incomes which promote early retirement has dominated the effect of rising lifespans our model predicts continuing declines in the optimal retirement age despite rising life expectancy provided the rate of real wage growth remains as high as in the last century

the quantity and quality of life and the evolution of world inequality gdp per capita is usually used to proxy for the quality of life of individuals living in different countries welfare is also affected by quantity of life however as represented by longevity this paper incorporates longevity into an overall assessment of the evolution of cross country inequality and shows that it is quantitatively important the absence of reduction in cross country inequality up to the 1990s documented in previous work is in stark contrast to the reduction in inequality after incorporating gains in longevity throughout the post world war ii period health contributed to reduce significantly welfare inequality across countries this paper derives valuation formulas for infra marginal changes in longevity and computes a full growth rate that incorporates the gains in health experienced by 96 countries for the period between 1960 and 2000 incorporating longevity gains changes traditional results countries starting with lower income tended to grow faster than countries starting with higher income we estimate an average yearly growth in full income of 4 1 percent for the poorest 50 percent of countries in 1960 of which 1 7 percentage points are due to health as opposed to a growth of 2 6 percent for the richest 50 percent of countries of which only 0 4 percentage points are due to health additionally we decompose changes in life expectancy into changes attributable to 13 broad groups of causes of death and three age groups we show that mortality from infectious respiratory and digestive diseases congenital perinatal and ill defined conditions mostly concentrated before age 20 and between ages 20 and 50 is responsible for most of the reduction in life expectancy inequality at the same time the recent effect of aids together with reductions in mortality after age 50 due to nervous system senses organs heart and circulatory diseases contributed to increase health inequality across countries

mortality transition and differential incentives for early retirement existing studies investigating the effect of mortality decline on retirement age usually specify the human mortality pattern in a parametric way and consider the derivative of optimal retirement age with respect to a change in the survival parameter however a survival parameter change affects the mortality rates at different ages simultaneously motivated by the stylized fact that mortality decline affects primarily younger people in the early phase of a mortality transition but mainly older people in the later phase we study the more fundamental question of how a mortality change at an arbitrary age affects optimal retirement age by using the volterra derivative for a functional we show that a mortality decline at an older age unambiguously leads to a later retirement age but a mortality decline at a younger age may lead to earlier retirement because of the substantial increase in the individual s expected lifetime human wealth

effects of patent policy on income and consumption inequality in a r d growth model what are the effects of strengthening patent protection on income and consumption inequality to analyze this question this paper incorporates heterogeneity in the initial wealth of households into a canonical quality ladder growth model with endogenous labor supply in this model i firstly show that the aggregate economy always jumps immediately to a unique and stable balanced growth path given the balanced growth behavior of the aggregate economy and an exogenous distribution of initial wealth i then show that the endogenous distribution of assets in subsequent periods is stationary and equal to its initial distribution the model predicts that strengthening patent protection increases a economic growth by stimulating r d investment and b income inequality by raising the return on assets however whether it also increases consumption inequality depends on the elasticity of intertemporal substitution if and only if this elasticity is less greater than unity strengthening patent protection increases decreases consumption inequality for standard parameter values strengthening patent protection leads to a larger increase in income inequality than consumption inequality

bridge jobs and partial retirement the job stopping process of older workers often includes some combination of postcareer bridge employment partial retirement and reverse retirement fewer than two fifths of household heads retire directly from career jobs over half partially retire at some point in their working lives and a quarter reenter the labor force after initially retiring in addition postcareer employment is frequently located outside the industry and occupation of the career job and there are important differences in postcareer labor force experiences by gender permanent income and career job pension status

some direct evidence on the importance of borrowing constraints to the labor force participation of married women this paper examines the link between credit availability and the labor supply decisions of married women in particular it uses data from the survey of consumer finances to test the role of some direct measures of borrowing constraints in a standard labor force participation equation although imperfect capital markets may alter the options available to households in a life cycle context the results suggest that borrowing constraints are of little importance to the labor force participation decisions of married women

measuring the distribution of material well being u s trends abstract economists with a few exceptions have automatically assumed that the important measure of well being is income in contrast economic historians have broadened the measure of well being with particular interest in mortality morbidity nutrition education and leisure when one takes this broader view of the standard of living there appears to be a strong trend toward more equality in the distribution of well being since the industrial revolution gini coefficients calculated for the distributions of lifespan and educational attainment have declined dramatically since the mid nineteenth century for the united states mortality and educational differentials have also declined inequality of leisure time and consumption though not as consistently measured also show trends toward equality over the twentieth century these trends toward equality in well being as measured by indicators other than income and wealth seem to be generated by provision of public goods natural boundaries to lifespan educational attainment and leisure and by the growth in mean per capita income the divergent trends in the distributions of income and the other measures of well being caution against reliance on the distribution of income to interpret trends in inequality

a comparative analysis of the nativity wealth gap this paper investigates the source of the gap in the relative wealth posi tion of immigrant households residing in australia germany and the united states our results indicate that in germany and the united states wealth difierentials are largely the result of disparity in the educational attainment and demographic composition of the native and immigrant populations while income difierentials are relatively unimportant in understanding the nativity wealth gap in contrast the relatively small wealth gap between australian and foreign born households exists because immigrants to australia do not translate their relative educational and demographic advantage into a wealth advantage on balance our results point to substantial cross national disparity in the economic well being of immigrant and native families which is largely consistent with domestic labor markets and the selection policies used to shape the nature of the immigration ow

the economics of pensions this paper sets out the economic analytics of pensions after introductory discussion successive sections consider the effects of different pension arrangements on labour markets on national savings and growth and on the distribution of burdens and benefits these areas are controversial and politically highly salient while open about expressing our own views the main purpose of the paper is to set out the analytical process by which we reach them to enable readers to form their own conclusions 1 the backdrop this paper has a two fold purpose it sets out the economic analytics of pensions without discussion of empirical magnitudes and outside the context of any particular country with the intention of giving readers a systematic way of thinking about the topic the paper is also intended as a contribution to a continuing debate hence part of the discussion rebuts arguments that we regard as false or equivocal or true in some circumstances but not necessarily always specifically we argue that much analysis is incomplete and oversimplified focussing on one objective while ignoring others assuming an idealised economy with well informed agents and no distortions such as taxes and missing markets comparing one steady state with another when the underlying issue is a move from one steady state to a different one or ignoring distributional effects the opening section sets out some background matters the objectives of pension systems types of pension arrangement and the economics of pensions sections 2 3 and 4 discuss in turn pensions and labour markets mainly microeconomic finance and funding mainly macroeconomic and distributional issues

uncertain lifetimes retirement and economic welfare the effect of increased life expectancy on retirement age is ambiguous because a change in the survival probability is analogous to a change in intertemporal prices it is shown that the decision to retire earlier or later depends on the old age saving behavior early retirement could emerge if one saves in old age it is also shown that the effect of intertemporal substitutions arising from the imperfection of the annuity market could produce a tilt to the reservation wage profile which in turn makes early retirement possible copyright 1991 by the london school of economics and political science

gluttony and sloth calories labour market activity and the rise of obesity the rise in obesity has largely been attributed to an increase in calorie consumption we show that official government household survey data indicate that levels of calorie consumption have declined in england between 1980 and 2013 while there has been an increase in calories from food eaten out at restaurants fast food soft drinks and confectionery overall there has been a decrease in total calories purchased households have shifted towards more expensive calories both by substituting away from home production towards market production and substituting towards higher quality foods we show that the decline in calories can be partially but not entirely rationalized with weight gain by a decline in the strenuousness of work and daily life jel d12 i12 i18

expectations life expectancy and economic behavior this study analyzes responses to a questionnaire designed to elicit subjective expectations and probabilities of survival people do extrapolate past improvements in longevity when they determine their subjective horizons and they are fully aware of levels of and movements within todays life tables the subjective distribution has greater variance than its actuarial counterpart and the subjective variance decreases with age the implications of these findings for optimal social security for the construction of annuities for the analysis of savings behavior and for evaluating lifetime earnings are discussed the data were collected in the united states from a sample of 411 white male economists and a sample of 363 white males in a midwestern smsa excerpt

the cyclical and secular behaviour of the labour input comparing efficiency units and hours worked summary a monthly labour input series designed to correct for the fact that all hours worked are not of the same quality is constructed and its properties compared with unadjusted hours worked this efficiency units series is constructed from bls data on hours worked and earnings by age and sex the cyclical fluctuations displayed by the efficiency units series are smaller on average than those displayed by hours worked although the difference is not large however the secular behaviour of the series is quite different hours worked per capita displays a significant positive trend while efficiency units per capita does not

economic growth population theory and physiology the bearing of long term processes on the this lecture sketches a theory of the secular decline in morbidity and mortality that takes account of changes induced in physiological functioning since 1700 the synergism between technological and physiological improvements has produced a form of human evolution biological though not genetic rapid culturally transmitted and not necessarily stable which is still ongoing in both oecd and developing countries thermodynamic and physiological aspects of economic growth are defined and their impact on growth rates is assessed implications of this theory for population forecasting measurement of national income demand for leisure pension policies and demand for health care are considered excerpt

a model of the demand for longevity and the value of life extension we specify a demand function for longevity or quantity of life along with corresponding demand functions for indicators of quality of life and a value of health and life extension function we show that the demand for health must be derived in conjunction with that for longevity and the related consumption plan and that all choices depend on initial individual endowments and terminal conditions our comparative dynamics predictions indicate that optimal health and longevity are increasing functions of endowed wealth rather than necessarily current income that improvements in opportunities to produce health can accentuate the differences between endowed health and attained longevity levels and that the value individuals ascribe to their health may be increasing over a good portion of their life cycle we use this model to analyze observed empirical variations in levels and trends of life expectancy and in exposure to health risks across different population groups

the contribution of female health to economic development we analyze the economic consequences for less developed countries of investing in female health we do this through developing and calibrating a novel micro founded dynamic general equilibrium model in which parents trade off the number of children against investments in their education and in which we allow for health related gender differences in productivity we show that better female health speeds up the demographic transition and thereby the take off toward sustained economic growth by contrast male health improvements delay the transition and take off because ceteris paribus they raise fertility investing in female health is therefore a potent lever for promoting development

retirement in the uk in common with other oecd countries the uk experienced more than two decades of declining labour market activity among older men from the 1970s to the early 1990s a trend that has only recently shown signs of being reversed retirement decisions are heavily shaped by institutional context and in the uk this has led to there being two distinct groups with very different retirement experiences at the top of the wealth distribution early retirement has typically been influenced by private occupational pensions at the bottom of the wealth distribution individuals are even more likely to be not working in their 50s but do not typically define themselves as retired and draw on income support or more usually disability benefits policy makers keen to increase effective retirement ages will need to consider the very different circumstances of these two groups

retirement and the evolution of pension structure defined benefit pension plans have become considerably less common since the early 1980s while defined contribution plans have spread previous research showed that defined benefit plans with sharp incentives encouraging retirement after a certain point contributed to the striking decline in american retirement ages in this paper we find that the absence of agerelated incentives in defined contribution plans leads workers to retire almost two years later on average compared to workers with defined benefit plans thus the evolution of pension structure can help explain recent increases in the typical retirement age after decades of decline

the effect of temporal risk aversion on liquidity preference abstract in most instances investors are not indifferent to risk their attitudes toward it influence their decisions temporal risk aversion the dynamic analogue of the usual concept of risk aversion has a marked effect on investors decisions but is usually ignored in the literature this paper investigates the liquidity preference of temporally risk averse investors the analysis shows that all other things being equal temporal risk aversion reduces the liquidity premium investors must receive to hold an asset that is not perfectly reversible thus the optimal investment policy is closer to what one would expect had a frictionless exchange market existed for the irreversible asset as far as an individual s investment behavior is concerned temporal risk aversion counters the effects of an asset s irreversibility and tends to compensate for the absence of frictionless exchange

optimal choice of health and retirement in a life cycle model abstract we examine within a life cycle model the simultaneous choice of health care and retirement together with consumption health tends to have an impact on retirement through morbidity determining earnings and the disutility of work and through longevity determining the need to accumulate retirement wealth conversely the age of retirement drives the demand for health care through the value of survival and the value of morbidity reductions we characterise the optimal relationship between health expenditure and retirement and apply our model to analyse the effects of moral hazard in the annuity market while moral hazard always induces excessive health investments and an excessive duration of working life it also triggers an excessive level of consumption if the impact of health on the disutility of work is sufficiently large we examine a transfer scheme and mandatory retirement as policies towards curtailing moral hazard numerical analysis illustrates the role of moral hazard in shaping the life cycle allocation

does industrial structure explain the benefits of international diversification abstract we examine the influence of industrial structure on the cross sectional volatility and correlation structure of country index returns for 12 european countries between 1978 and 1992 we find that industrial structure explains very little of the cross sectional difference in country return volatility and that the low correlation between country indices is almost completely due to country specific sources of return variation diversification across countries within an industry is a much more effective tool for risk reduction than industry diversification within a country

who is credit constrained in the u s economy an important assumption of the life cycle model of consumption is the postulate of perfect capital markets this hypothesis has recently been challenged by substantial empirical evidence hall and mishkin 1982 using the panel study of income dynamics estimate that 20 percent of united states families are liquidity constrained mariger 1986 derives a life cycle model with endogenous liquidity constraints and using a cross section estimates this fraction to be 19 4 percent hubbard and judd 1986 simulate a model with a constraint on net worth which shows that with reasonable assumptions about preferences 19 0 percent of united states consumers are liquidity constrained the emerging consensus points therefore to a fraction of approximately 20 percent of the population behaving in a manner that is inconsistent with the pure life cycle model in addition hayashi 1985 and zeldes 1989 investigate the correlation among consumption wealth and income for various population groups and infer that liquidity constraints are more important for younger families with low levels of wealth and saving the main limitation of these studies is that in their data sets constrained consumers are not observable and have to be identified via indirect evidence thus there is as yet little firm evidence about the characteristics of the consumers who are likely to be credit constrained this paper adopts an approach that differs from previous tests for liquidity constraints because it makes use of data where constrained consumers are observable and explicitly links their existence to credit market imperfections and personal characteristics the data drawn from the 1983 survey of consumer finances scf and described in section ii provide information on individuals whose request for credit has been rejected by financial intermediaries in section iii a model is developed in which consumers and lenders behavior jointly determines the probability that a consumer is rationed in the credit market this probability is then

does institutional ownership matter for international stock return comovement funding portuguese foundation for science and technology fct uid ges 00407 2013 ptdc iim fin 2977 2014 and european research council

international diversification strategies revisited from the risk perspective following roll roll r 1992 industrial structure and comparative behaviour of international stock market indices journal of finance 47 3 42 and heston and rouwenhorst heston s l rouwenhorst g k 1994 does industrial structure explain the benefits of international diversification journal of financial economics 36 3 27 researchers have decomposed stock returns into country and industry components evidence suggests that industry components have become more important in recent years but the reasons for this are unclear existing research concentrated mainly on stock returns in industrial countries in this paper we consider instead the decomposition of stock risks within emerging equity markets we provide a rationale for this procedure and its relationship to return decompositions the results provide new firm specific evidence on the debate over country and industry components their stability over time and the implications for portfolio diversification

age discrimination laws and labor market efficiency in lazear s model of long term incentive contracts age discrimina tion laws barring age based involuntary terminations preclude such contracts reducing efficiency alternatively such laws may serve as precommitment devices for these contracts without pre venting firms from offering strong financial incentives to induce retirement at specific ages in this case age discrimination laws may encourage lazear contracts hence increasing efficiency we assess evidence on these alternative interpretations using variation in state and federal age discrimination laws the evidence indicates that age discrimination laws steepen age earnings profiles for co horts entering the labor market suggesting that these laws encour age the use of lazear contracts

recent trends in the size distribution of household wealth based on the survey of consumer finances the distribution of wealth in the united states became much more unequal in the 1980s and that trend continued albeit at a slower pace in the 1990s the only households that saw their mean net worth rise in absolute terms between 1983 and 1995 were those in the top 20 percent and the gains were particularly strong for the top one percent all other groups were particularly strong for the top one percent all other groups suffered real wealth losses including the median household and declines were particularly precipitous at the bottom racial disparities widened and young households also lost out over this period

a model and empirical estimates of worker pension coverage in the u s an important issue in labor market policy today is private pension coverage it is well known that pension benefits have grown rapidly in the post world war ii years for example pension and other benefit payments as a percentage of total employee compensation rose from 7 4 in 1953 to 13 0 by 1973 11 27 yet pension participation is far from universal the most recent estimate is that 48 of all wage and salary workers currently are covered partly in response to this the president s commission on pension policy has recommended in its final report federal legislation to establish a national minimum funded pension system which would be required of all employers 8 7 this paper attempts to explain the variation in pension coverage two opposing views of pensions having very different implications for pension policy can be identified the first is implicitly adopted by the president s commission in this view pensions are exogenous to the competitive forces of the labor market distributed on a random basis as a bonus pensions do not substitute for other forms of compensation and therefore everyone would prefer to be covered a very different theory is that pensions result from competitive forces implicit in the labor market is a market for pensions in which the supply is the outcome of firms attempting to minimize costs while demand results from workers maximizing utility by choosing the optimal package of wage and nonwage compensation an outcome of this implicit market is a trade off between pension benefits and other forms of compensation if pensions are purchased in this manner systematic differences in pension coverage should emerge some workers will prefer wages and

the european union the euro and equity market integration abstract we use industry valuation differentials across european countries to study the impact of membership in the european union as well as the eurozone on both economic and financial integration in integrated markets discount rates and expected growth opportunities should be similar within one industry irrespective of the country implying narrowing valuation differentials as countries become more integrated our analysis of the 1990 2007 period shows that membership in the eu significantly lowered discount rate and expected earnings growth differentials across countries in contrast the adoption of the euro was not associated with increased integration our results do not change when the sample is extended to include the recent crisis period

gender differences in wealth at retirement recent economic trends like the growing prevalence of defined contribution retirement plans have made individuals increasingly responsible for their own financial security financial security greatly depends on the ability to accumulate adequate wealth edward wolff 1998 wealth can be a significant source of retirement income for individuals less and less able to rely on social security and employerprovided defined benefit pension plans one concern in the current economic climate is the persistent gap in wealth between men and women several papers for example lucie schmidt and purvi sevak 2006 have found that the gap is significant even after controlling for individual characteristics this paper contributes to the literature by studying the role of risk preferences in addition to other characteristics specifically it addresses the following research question controlling for other factors do gender differences in risk preferences contribute to the gender wealth gap at retirement the underlying premise is that women are more risk averse than men which is supported by previous research for example robert b barsky et al 1997 a simple theoretical model of household decision making illustrates that retirement wealth is a function of income earned over the lifetime and risk aversion the model is empirically tested using data from the health and retirement study hrs 1 results show that the gender gap in wealth persists even when risk preferences are added to the set of controls thus the unexplained gap remains a cause for concern

pensions overview of the issues many countries face increasing fiscal problems financing pensions in the face of population aging there is controversy about the underlying economic theory about the extent of the problem and about the best mix of policies to protect old age security this paper establishes the areas of debate gives thumbnail descriptions of pension arrangements in different countries discusses the main analytical and empirical issues relevant to thinking about pension design and assesses a range of policy directions the main conclusions are that what matters most is effective government and economic growth that the debate between pay as you go and funding is secondary that good pension schemes can take many forms and that there is a problem in financing pensions but not a crisis copyright 2006 oxford university press

longevity and life cycle savings we add health and longevity to a standard model of life cycle saving and show that under plausible assumptions increases in life expectancy lead to higher savings rates at every age even when retirement is endogenous in a stationary population these higher savings rates are offset by increased old age dependency but during the disequilibrium phase when longevity is rising the effect on aggregate savings rates can be substantial we find empirical support for this effect using a cross country panel of national savings rates

the rise of sector effects in major equity markets historically country effects have been dominant in explaining variations in global stock returns even in the developed markets and investors have segmented their allocations accordingly we set out to investigate whether this situation still prevails we found a significant shift in the relative importance of national and economic influences in the stock returns of the world s largest equity markets in these markets the impact of industrial sector effects is now roughly equal to that of country effects in addition to supporting the notion of increasing global capital market integration these findings suggest that country based approaches to global investment management may be losing their effectiveness

international asset allocations and capital flows the benchmark effect this paper studies channels through which well known benchmark indexes impact asset allocations and capital flows across countries the study uses unique monthly micro level data of benchmark compositions and mutual fund investments during 1996 2012 benchmarks have important effects on equity and bond mutual fund portfolios across funds with different degrees of activism benchmarks explain on average around 70 percent of country allocations and have significant impact even on active funds benchmark effects are important after controlling for industry macroeconomic and country specific time varying effects reverse causality does not drive the results exogenous pre announced changes in benchmarks result in movements in asset allocations mostly when these changes are implemented not when announced by impacting country allocations benchmarks affect capital flows across countries through direct and indirect channels including contagion they explain apparently counterintuitive movements in capital flows generating outflows from countries when upgraded and with large market capitalization and better relative performance

monetary stabilisation with nominal asymmetries optimal monetary stabilisation in the standard new keynesian framework usually assumes a policy loss function from outside the model in this paper in contrast the objective arises directly from the model credit constraints and sticky nominal debt contracts imply that monetary stabilisation has asymmetric impacts depending on whether consumers are credit constrained the policy problem is to maximise some weighting of the expected utility of the different types of consumer features of optimal stabilisation are derived that do not appear to be far out of line with empirical evidence for many countries but that clearly conflict with standard loss function results

pensions and household wealth accumulation abstract economists have long suggested that higher private pension benefits crowd out other sources of household wealth accumulation we exploit detailed information on pensions and lifetime earnings for older workers in the 1992 wave of the health and retirement study and employ an instrumental variable iv identification strategy to estimate crowd out the iv estimates suggest statistically significant crowd out each dollar of pension wealth is associated with a 53 67 cent decline in nonpension wealth with less precision we use an instrumental variable quantile regression estimator and find that most of the effect is concentrated in the upper quantiles of the wealth distribution

car ownership and the labor market of ethnic minorities we show how initial wealth differences between low skilled minorities and white workers can generate differences in their labor market outcomes this even occurs in the absence of a taste for discrimination against ethnic minorities or exogenous differences in distance to jobs because of the initial wealth difference minorities cannot afford to buy a car while whites can car ownership allows whites to reach more jobs per unit of time which gives them a better bargaining position in the labor market as a result in equilibrium ethnic minorities end up with both higher unemployment rates and lower wages than whites furthermore we also show that it takes more time for minorities to reach their jobs even though they travel less miles when employed those predictions are consistent with the data better access to capital markets or better public transportation will reduce the differences in labor market outcomes

the savers spenders theory of fiscal policy the macroeconomic analysis of fiscal policy is usually based on one of two canonical models the barro ramsey model of infinitely lived families or the diamond samuelson model of overlapping generations this paper argues that neither model is satisfactory and suggests an alternative in the proposed model some consumers plan ahead for themselves and their descendants while others live paycheck to paycheck this model is easier to reconcile with the essential facts about consumer behavior and wealth accumulation and it yields some new and surprising conclusions about fiscal policy

pension coverage and borrowing constraints using data from the 1983 survey of consumer finances and taking a measure of borrowing constraint status as an indication of a worker s discount rate we find evidence that borrowing constrained workers are less likely to be covered by a pension plan and that the borrowing constraint effect is significant only for defined benefit plans this paper examines the extent to which differences in workers rates of time preferences can explain pension coverage outcomes we argue that workers with a high rate of time preference will avoid jobs with pensions because pension saving cannot be costlessly borrowed against and they will be more reluctant to join a defined benefit than a defined contribution plan because defined benefit plans offer less flexibility in choosing a pension saving rate the existing empirical literature on pension coverage emphasizes the role of taxes incentives administrative costs and employee perceptions of default and nonportability risks 1 this study concentrates on how the ability to borrow against pension contributions affects worker pension demand

time preference and the importance of saving for retirement abstract this study models the importance respondents place on saving for retirement as a function of time preference using a sample of 6812 undergraduate and graduate students individual time preference is measured by comparing dollar values over time and through a combination of intertemporal behaviors that may be the most theoretically appropriate measurement of the discount rate for utility over time results show strong correlations among decision making domains that involve time discounting time preference measured by comparing dollar amounts across time proves a much weaker predictor than a combination of intertemporal behaviors measured either as a linear scale or as factors in multivariate models a factor of intertemporal preventive health behaviors is a stronger predictor of the importance of saving for retirement than all other explanatory variables including age race parental income gender gpa and college major

to defer or not defer uk state pension and work decisions in a lifecycle model the uk state pension which depends only on age includes an option to defer take up which yields either a subsequent lump sum or higher weekly pension we analyse the joint decisions on pension deferral and intertemporal labour supply participation in a lifecycle setting we show that deferral is purely a financial decision but the impact of deferral on work decisions depends on preferences wage rates non labour income and initial wealth to exactly characterize this we use a quasilinear utility function and provide calibrated simulations we also discuss the choice between a lump sum or increased weekly pension

second best optimal taxation of capital and labor in a developing economy abstract as commercial integration reduces the reliance on foreign trade taxation raising tax revenue has become a major concern for the governments of developing economies this paper examines how the tax burden in a developing economy should be distributed between capital income and labor income we study a two sector model where the traditional sector is informal and consequently cannot be taxed by the government in this setup we find that the optimal second best tax structure in order to raise a certain amount of revenue requires to tax capital income at least as much as labor income and possibly more

the retirement consumption puzzle and involuntary early retirement evidence from the british household panel survey this article uses data from the british household panel survey bhps to shed further light on the fall in consumption at retirement the retirement consumption puzzle comparing food spending of men retiring involuntarily early through ill health or redundancy with spending of men who retire voluntarily it finds a significant fall in spending only for those who retire involuntarily this is consistent with the observed fall in spending being linked to a negative wealth shock for some retirees

when in peril retrench testing the portfolio channel of contagion abstract the impact of past gains and losses on international investors risk aversion is an important factor in the propagation of financial shocks across countries we first present a stylized model illustrating how changes in investors risk aversion affect portfolio decisions and stock prices we then examine empirically the behavior of international mutual funds when funds returns are below average they reduce their exposure to countries in which they were overweight and vice versa an index of financial interdependence that reflects the extent to which countries share overexposed funds helps explain the pattern of stock market comovement across countries and the pattern of contagion during crises

the value of life and the rise in health spending over the past half century americans spent a rising share of total economic resources on health and enjoyed substantially longer lives as a result debate on health policy often focuses on limiting the growth of health spending we investigate an issue central to this debate is the growth of health spending a rational response to changing economic conditions notably the growth of income per person we develop a model based on standard economic assumptions and argue that this is indeed the case standard preferences of the kind used widely in economics to study consumption asset pricing and labor supply imply that health spending is a superior good with an income elasticity well above one as people get richer and consumption rises the marginal utility of consumption falls rapidly spending on health to extend life allows individuals to purchase additional periods of utility the marginal utility of life extension does not decline as a result the optimal composition of total spending shifts toward health and the health share grows along with income in projections based on the quantitative analysis of our model the optimal health share of spending seems likely to exceed 30 percent by the middle of the century

national versus global influences on equity returns simple factor models of worldwide equity returns are used to explore the level and trend in international capital market integration global influences and national influences are of roughly equal importance in explaining the common movements in equity returns significant evidence indicates a trend toward increasing integration within the european union but not worldwide

delayed payment contracts and a firm s propensity to hire older workers there are jobs for which firms employ older workers but tend not to hire new older workers this may be attributable in part to implicit contracts that discourage worker shirking and malfeasance by shifting compensation to the end of the contract such delayed payment contracts can introduce a form of fixed costs into the employment relationship much as with hiring and training costs these fixed costs lead firms to hire primarily young long term workers while firms employ older workers workers who are serving out the last years of their contract they tend not to hire them this paper presents empirical evidence that is consistent with this argument

life expectancy and endogenous growth we consider an overlapping generations model with uncertain lifetime and endogenous growth individuals have to choose the length of time devoted to schooling before starting to work we show that it depends positively on life expectancy but that the positive effect of a longer life on growth could be offset by a decrease in the participation rate dynamics are characterized by a delay differential equation and human capital converges with oscillations to a balanced growth path

intertemporal substitution and constraints on labor supply evidence from panel data intertemporal substitution and constraints on labor supply evidence from panel data i introduction through much of the 1970s and 1980s macroeconomic stabilization analysis has been dominated by equilibrium models in which fluctuations in employment result from intertemporal substitution workers voluntarily vary their labor supply over time in response to movements in wages and interest rates a number of recent empirical tests of intertemporal substitution models for example altonji 1982 mankiw et al 1985 ham 1986 strongly reject the intertemporal substitution approach these results have led some economists to reject equilibrium macro models in favor of keynesian models in which workers face quantity constraints on labor supply in keynesian models employment fluctuations result from changes in the severity of constraints that is changes in involuntary unemployment rather than intertemporal substitution on the other hand many economists remain unconvinced by recent rejections of intertemporal substitution models because the results are consistent with many possible explanations for tractability empirical studies always impose restrictive assumptions such as separability of utility over time and between goods or such as the existence of a representative consumer data also suffer from numerous problems such as aggregation bias measurement error and the use of average rather than marginal wage rates consequently even the authors of the studies seem hesitant to draw firm conclusions they often simply conclude that workers behavior is explained either by quantity constraints or by a more complicated intertemporal substitution model than the one they have tested 1 this paper attempts to determine which of these explanations is correct are changes in employment a sophisticated form of intertemporal substitution or are they involuntary the crucial data come from questions in the panel study of income dynamics about whether workers experience unemployment or are unable to work as many hours as they want following ham 1982 1986 this information is used to classify workers as quantity constrained in their labor supply or unconstrained i then test a simple intertemporal substitution model for each group of workers if the tests suffer from overly restrictive utility functions or data problems then the model should be rejected for both samples on the other hand if some workers truly face quantity constraints then the model should perform better for the sample of unconstrained workers 2 the tests yield two main results first the model indeed performs worse for the constrained workers for this group the data reject the model s overidentifying restrictions and the parameter estimates contradict the model in contrast the results for the unconstrained workers are weakly consistent with the model as keynesian theories suggest quantity constraints alter workers behavior second the estimates of the intertemporal labor supply elasticity for prime age men are close to zero even for unconstrained workers even if workers are free to vary their hours they apparently choose to respond little to movements in wages the paper addresses two other issues first do constraints on borrowing influence labor supply in the intertemporal substitution model workers borrow and lend to smooth consumption while varying hours of work as this suggests the model performs best for workers who not only face no labor supply constraints but who also own substantial assets and thus are unlikely to face liquidity constraints finally the paper proposes a new approach to identifying intertemporal labor supply equations previous micro studies do not adequately address the problem that wages are correlated with unobservable characteristics that affect tastes for work i propose two identifying restrictions 1 changes in tastes are uncorrelated with levels of time in variant variables and 2 changes in tastes have no aggregate component

a new pension settlement for the twenty first century the uk pensions commission s analysis and proposals this article summarizes the analysis and recommendations of the uk pensions commission which reported in november 2005 the uk faces similar demographic challenges to other nations from increasing longevity and past fertility declines however in the face of them both state and private pension provision are in decline for younger cohorts the commission proposes reforms to the state pension system which would make it more generous less means tested and more universal than it would otherwise become this would require both higher public spending on pensions as a share of gdp than now and a gradual increase in state pension age after 2020 it also proposes establishment of a new national pension savings scheme into which workers would be automatically enrolled with the right to opt out if they were outside good employer provision together with measures to facilitate later and more flexible retirement copyright 2006 oxford university press

pensions and indenture premia the implicit pension contract has provided a theoretical basis for the observed relation between pensions less quitting and earlier retirement but it also has encountered difficulty explaining why wages seem too high in pension firms this anomaly has been taken by some to imply that efficiency wages not pension capital losses explain why quitting is abnormally low in defined benefit pensions in this paper i pursue an alternative explanation that the implicit contract model is oversimplified because it ignores supply conditions facing long tenure firms i show that once an allowance is made for compensation required by workers for entering long term labor contracts numerous anomalous empirical observations in the pension market are explicable

the distribution of wealth with uncertain income it is well known that an uncertain income stream will induce individuals to save if they are forward looking in this paper we investigate the consequences of such saving on the distribution of wealth among households the inquiry is motivated by the fact that both the dispersion of the us wealth distribution and the variance of transitory income have increased in the recent past surprisingly we find that an increase in earnings uncertainty is more likely to decrease than increase the inequality in wealth holdings

black white differences in wealth and asset composition using data from the 1976 and 1978 national longitudinal surveys of young men and young women this study examines racial differences in the magnitude and composition of wealth and the reasons for them on average young black families hold 18 percent of the wealth of young white families and hold their wealth in proportionately different forms even after controlling for racial differences in income and other demographic factors as much as three quarters of the wealth gap remains unexplained we speculate on the causes for this concluding that racial differences in intergenerational transfers and to a lesser extent barriers to the accumulation of business and home equity most likely play a role

the optimal phasing of phased deregulation abstract if producers or consumers behave myopically sudden and complete deregulation of a market with long standing price controls can lead to an inefficient allocation of resources this paper uses a simple model in which producers have adjustment costs to analyze optimal policies for phased deregulation tax policies are also examined and policy implications are discussed

longevity and lifetime labor supply evidence and implications conventional wisdom suggests that increased life expectancy had a key role in causing a rise in investment in human capital i incorporate the retirement decision into a version of ben porath s 1967 model and find that a necessary condition for this causal relationship to hold is that increased life expectancy will also increase lifetime labor supply i then show that this condition does not hold for american men born between 1840 and 1970 and for the american population born between 1890 and 1970 the data suggest similar patterns in western europe i end by discussing the implications of my findings for the debate on the fundamental causes of long run growth

institutions and individuals at the turn of the year this article evaluates the tax loss selling hypothesis against the window dressing hypothesis as explanations for turn of the year anomalies we examine differences between securities dominated by individual investors versus those dominated by institutional investors and find that the effect is more pervasive in the former controlling for capitalization we find that in early january late december stocks with greater individual investor interest outperform underperform stocks with greater institutional investor interest these results hold for both stocks that previously appreciated in value and stocks that previously depreciated in value the results are most consistent with the tax loss selling hypothesis as an explanation for the turn of the year effect

compression of morbidity and the labor supply of older people this article tests whether there is evidence of compression of morbidity using health and retirement study hrs data and analyses the effects of this on the labour supply of older people we find younger cohorts to suffer less from functional problems than older cohorts at given ages furthermore we observe that instrumentalized disability has a negative effect on labour force participation according to the cohort analysis and the multivariate analysis it can be concluded that individuals will be able to work longer because of the delay in the onset of disability problems

recent trends in top income shares in the usa reconciling estimates from march cps and irs tax return data although the majority of research on us income inequality trends is based on public use march cps data a new wave of research using irs tax return data reports substantially higher levels of inequality and faster growing trends we show that these apparently inconsistent estimates are largely reconciled if the inequality measure and the income distribution are defined in the same way using internal cps data for 1967 2006 we closely match irs data based estimates of top income shares reported by piketty and saez 2003 our results imply that any inequality increases since 1993 are concentrated among the top 1 percent of the distribution

life expectancy human capital social security and growth we analyze the effects of changes in the mortality rate upon life expectancy education retirement age human capital and growth in the presence of social security we build a vintage growth overlapping generations model in which individuals choose the length of education and the age of retirement and where unfunded social security pensions depend on workers past contributions social security has a positive effect on education but pension benefits favor reductions in retirement age the net effect is that starting from a benchmark case higher life expectancies give rise to lower per capita gdp growth in the presence of social security as the share of the active population is reduced in addition higher social security contribution rates reduce the growth rate of per capita gdp

wealth information acquisition and portfolio choice i solve with an approximation a grossman stiglitz economy under general preferences thus allowing for wealth effects because information generates increasing returns decreasing absolute risk aversion in conjunction with the availability of costly information is sufficient to explain why wealthier households invest a larger fraction of their wealth in risky assets one no longer needs to resort to decreasing relative risk aversion an empirically questionable assumption furthermore i show how to distinguish empirically between these two explanations finally i find that the availability of costly information exacerbates wealth inequalities copyright 2004 oxford university press

stock market wealth and consumption this paper explores the link between changes in the aggregate value of corporate stock and changes in consumer spending it presents data on the distribution of corporate stock ownership based on the 1998 survey of consumer finances it also uses time series evidence on the comovement of stock market wealth and various categories of consumer spending to calibrate the wealth effect it concludes that in the year after a change in stock market values consumer spending is likely to rise by between one and two cents for each dollar increase in the value of corporate stock

back to work expectations and realizations of work after retirement this paper analyzes a puzzling aspect of retirement behavior known as unretirement nearly 50 percent of retirees follow a nontraditional retirement path that involves partial retirement or unretirement and at least 26 percent of retirees later unretire i explore two possible explanations 1 unretirement transitions result from failures in planning or financial shocks and 2 unretirement transitions are anticipated prior to retirement reflecting a more complex retirement process i show that unretirement was anticipated for the vast majority of those returning to work and is not a result of financial shocks poor planning or low wealth accumulation