pension profile preferences the influence of trust and expected expenses this paper studies the influence of people s expectations about expenses during retirement and trust in pension funds on preferences for different pension arrangements although most workers prefer

investment in financial literacy and saving decisions abstract we present an intertemporal consumption model of investment in financial literacy consumers benefit from such investment because financial literacy allows them to increase the returns on wealth since literacy depreciates over time and has a cost in terms of current consumption the model delivers an optimal investment in literacy furthermore literacy and wealth are determined jointly and are positively correlated over the life cycle the model drives our empirical approach to the analysis of the effect of financial literacy on wealth and saving and indicates that the stock of financial literacy early in life is a valid instrument in the regression of wealth on financial literacy using microeconomic and aggregate data we find strong support for the model s predictions

a rank dependent utility model of uncertain lifetime abstract in a continuous time life cycle model of consumption with an uncertain lifetime we use a non parametric specification of rank dependent utility theory to characterize the preferences of the agent we prove that time consistency holds for a subclass of probability weighting function providing the foundation for a constant rate of time preference that interacts multiplicatively with the hazard rate instead of additively as in the yaari 1965 seminal model we calibrate both models to explain the hump in the life cycle consumption and show that the multiplicative model is more robust

optimal unemployment insurance for older workers this paper studies the optimal unemployment insurance for older workers in a repeated principal agent model where the search intensity of risk averse workers the agents is not observed by the risk neutral insurance agency the principal when unemployment benefits are the only available tool the insurance agency is not able to induce older workers to search for a job this is because of the short time horizon of workers close to retirement we propose to introduce a pension tax dependent on the length of the unemployment spell we show that this device performs better than a wage tax after re employment first it makes jobs more attractive as they are free of tax second because re employment will be short lived a pension tax is a more powerful incentive than a wage tax and provides more substantial fiscal gains to the agency finally a pension tax allows those workers near retirement who still do not exercise job search to smooth their consumption during their unemployment spell as if they could borrow against their future pension

private transfers borrowing constraints and the timing of homeownership the 1991 italian survey of household income and wealth contains retrospective information on intergenerational transfers this information is used to estimate the impact of transfers on the saving time required to purchase a house it is found that transfers have a small impact on saving time and that after receiving a transfer households purchase considerably larger homes the results have implications for the debate about the source of the relation between aggregate saving and growth

ageing and unused capacity in europe is there an early retirement trap we address the issue of how early retirement may interact with limited use of financial markets in producing financial hardship later in life when some risks such as long term care are not insured we argue that the presence of financially attractive early retirement schemes in a world of imperfect financial and insurance markets can lead to an early retirement trap indeed europe witnesses many early retired individuals in financial distress in our analysis we use data on 10 european countries which differ in their pension and welfare systems in prevailing retirement age and in households access to financial markets we find evidence that an early retirement trap exists particularly in some southern and central european countries people who retired early in life are more likely to be in financial hardship in the long run our analysis implies that governments should stop making early retirement attractive let retirees go back to work improve access to financial markets and make sure long term care problems are adequately insured viola angelini agar brugiavini and guglielmo weber

the hyperbolic consumption model calibration simulation and empirical evaluation ur preferences for the long run tend to conflict with our short run behavior when planning for the long run we intend to meet our deadlines exercise regularly and eat healthfully but in the short run we have little interest in revising manuscripts jogging on the stairmaster and skipping the chocolate souffleala mode delay of gratification is a nice long term goal but instant gratification is disconcertingly tempting this gap between long run intentions and short run actions is apparent across a wide range of behaviors including saving choices a 1997 survey found that 76 percent of respondents believe they should be saving more for retirement looking only at respondents who believed they were at an age where you should be seriously saving already the survey found that 55 percent reported being behind in their savings and only 6 percent reported being ahead farkas and johnson 1997 the report on the survey concluded t he gaps between people s atti tudes intentions and behavior are troubling and threaten increased insecurity and dissatisfaction for people when they retire americans are simply not doing what logic and their own reasoning suggests they should be doing a 1993 luntz webber merrill lynch survey found similar answers when baby boomers were asked what percentage of your annual household income do you think you should save for retirement and what percentage of your annual

risk management and the value of symmetric information in insurance markets the introduction of symmetric information that allows for the costless classification of consumers according to risk type induces insurance companies to charge each consumer a risk class specific rate thus creating premium risk if firms are risk averse or face a costly to maintain solvency constraint then such information allows firms to organize their portfolios more efficiently and so lowers the average cost of insurance an assessment of the impact of such information on social welfare involves trading off these beneficial efficiency effects against the adverse distributional consequences of premium risk copyright 1988 by the london school of economics and political science

the effect of labor unions on investment in training a dynamic model control over the amount of training required of new entrants is a potentially important tool available to many craft unions this is often exercised through licensing based on schooling and apprenticeship requirements and on passing special examinations the standards are to a large extent determined and monitored by the incumbent practitioners thus physicians are required to train in various forms of schooling internship and residence for up to eight years architects need five years of schooling and three years of apprenticeship accountants require four years of college and one year of apprenticeship less widely known are the schooling and apprenticeship requirements of barbers plumbers and mine foremen which require up to five or six years of investment finally most craft unions require apprenticeship periods of two to four years see kolberg 1976

life cycle equilibrium unemployment this paper extends the job creation job destruction approach to the labor market to take into account a deterministic finite horizon as hirings and separations depend on the time over which investment costs can be recouped the life cycle setting implies age differentiated labor market flows while search by the unemployed falls with age the separation rate is rather u shaped over the life cycle worker heterogeneity in the context of undirected search implies an intergenerational externality which is not eliminated by the hosios condition we show that age specific policies are required to attain the first best allocation

retirement effect on health status and health behaviors in urban china abstract this paper analyzes the causal impact of retirement in china on body mass index bmi and weight which are a good gauge of the risk for some diseases many middle income developing countries are aging very rapidly and may have to adjust the retirement age to have financially feasible government budgets it is important to know and understand any plausible health consequences of raising the retirement age in developing countries and which sub populations within these countries may be most affected by using 2011 2013 and 2015 waves of the china health and retirement longitudinal study charls our identification strategy uses variation in china s mandatory retirement age with a fuzzy discontinuity design to examine an exogenous shock to retirement behavior our study finds that retirement will increase weight and bmi among men this effect is much larger for men with low education the channel may be that men with low education drink more and take less vigorous exercises after they get retired retirement does not affect weight and bmi for women these effects are robust with different definitions of retirement narrow retirement bandwidth for samples as well as dropping samples with rural hukou

retirement effects on health in europe what are the health impacts of retirement as talk of raising retirement ages in pensions and social security schemes continues around the world it is important to know both the costs and benefits for the individual as well as the governments budgets in this paper we use the survey of health ageing and retirement in europe share dataset to address this question in a multi country setting we use country specific early and full retirement ages as instruments for retirement behavior these statutory retirement ages clearly induce retirement but are not related to an individual s health exploiting the discontinuities in retirement behavior across countries we find significant evidence that retirement has a health preserving effect on overall general health our estimates indicate that retirement leads to a 35 percent decrease in the probability of reporting to be in fair bad or very bad health and an almost one standard deviation improvement in the health index while the self reported health seems to be a temporary impact the health index indicates there are long lasting health differences

quality matters the expulsion of professors and the consequences for phd student outcomes in nazi germany i investigate the effect of faculty quality on phd student outcomes to address the endogeneity of faculty quality i use exogenous variation provided by the expulsion of mathematics professors in nazi germany faculty quality is a very important determinant of short and long run phd student outcomes a one standard deviation increase in faculty quality increases the probability of publishing the dissertation in a top journal by 13 percentage points the probability of becoming a full professor by 10 percentage points the probability of having positive lifetime citations by 16 percentage points and the number of lifetime citations by 6 3

the strategic bequest motive although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation our understanding of bequest motives remains incomplete we develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries actions the model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers we present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries

household saving micro theories and micro facts in this survey we review the recent theoretical and empirical literature on household saving and consumption the discussion is structured around a list of motives for saving and how well the standard theory captures these motives we show that almost all of the motives for saving that have been suggested in the informal saving literature can be captured in the standard optimizing model particular attention is given to recent work on the precautionary motive and its implications for saving and consumption behavior we also discuss the behavioral or psychological approach that eschews the use of standard optimization techniques and focuses instead on direct consideration on saving we provide a section on facts who save and how much we then discuss informally the recent decline in the u s saving rate and whether the theory is of much use in understanding this and other changes in aggregate saving rates over time we do not find any convincing explanation for the change in saving rates we also discuss some analyses of saving behavior over the life cycle addressing such questions as whether households save enough for retirement and whether the consumption patterns of older households can be rationalized within a simple life cycle model we also review a great number of studies of the consumption euler equations based on our analysis of the studies cited we conclude that there is still mixed evidence that consumption is excessively sensitive to income we also examine in depth the recent empirical literature on the precautionary motive we conclude that although some households do seem to have a significant precautionary motive at some points in their life cycle this motive is not so strong empirically as some investigators suggest

aging and pensions in general equilibrium labor market imperfections matter we re examine the effects of population aging and pension reforms in an olg model with labor market frictions the most important feature brought about by labor market frictions is the connection between the interest rate and the unemployment rate exogenous shocks such as aging leading to lower interest rates also imply lower equilibrium unemployment rates because lower capital costs stimulate labor demand and induce firms to advertise more vacancies these effects may be reinforced by increases in the participation rate of older workers induced by the higher wage rates and the larger probability of finding a job these results imply that neglecting labor market frictions and employment rate dynamics may seriously bias the evaluation of pension reforms when they have an impact on the equilibrium interest rate

consumption during retirement the missing link in the life cycle this study presents the first evidence on the relation of consumption to lifetime wealth based on data from the 1973 and 1975 retirement history survey that have been linked to social security earnings records nearly 500 white married fully retired couples ages 62 69 form the basis of the analysis on average their consumption early in retirement exceeds by 14 percent the income that their financial pension and social security wealth can generate this implies that their saving both private and through social security is insufficient to sustain consumption throughout the rest of their lives additional evidence based on changes in spending between 1973 and 1975 shows that these households respond by reducing their real consumption at a rate sufficient to generate positive changes in net financial worth within a few years after retirement these two pieces of evidence can be rationalized by a rate of time preference much higher than the interest rate coupled with either a bequest motive or uncertainty about the length of life they also imply that even when combined with private pensions and savings social security in the united states today does not enable most recipients to maintain their living standard at the levels they enjoyed before they retired this abstract was borrowed from another version of this item

what do we learn from recall consumption data in this paper we use two complementary italian data sources the 1995 istat and bank of italy household surveys to generate householdspecific nondurable expenditure in the bank of italy sample that contains relatively high quality income data we show that food expenditure data are of comparable quality and informational content across the two surveys once we properly account for heaping rounding and time averaging we therefore depart from standard practice and rely on the estimation of an inverse engel curve on istat data to impute nondurable expenditure to bank of italy observations and show how we can use these estimates to analyze consumption age profiles conditional on demographics our key result is that predictions based on a standard set of demographic and socioeconomic indicators are quite different from predictions that also condition on simulated food consumption in the sense that their age profile is less in line with the implications of the standard consumer intertemporal optimization problem

life cycle prices and production we use scanner data and time diaries to document how households substitute time for money through shopping and home production we document substantial heterogeneity in prices paid for identical goods for the same area and time with older households shopping the most and paying the lowest prices doubling shopping frequency lowers a good s price by 7 to 10 percent we estimate the shopper s price of time and use this series to estimate an elasticity of substitution between time and goods in home production of roughly 1 8 the observed life cycle time allocation implies a consumption series that differs markedly from expenditures

accounting for the u s earnings and wealth inequality we show that a theory of earnings and wealth inequality based on the optimal choices of ex ante identical households that face uninsured idiosyncratic shocks to their endowments of efficiency labor units accounts for the u s earnings and wealth inequality almost exactly

efficient labor contracts with employment risk this article analyzes efficient employment agreements where the demand for consumption insurance can be satisfied by noncontractual means we assume that workers can save and that consumption is determined by a strong form of the permanent income hypothesis under conditions of asymmetric information about exogenous shocks to labor demand we derive a unique compensation schedule that efficiently guides decisions by both workers and employers efficient employment outcomes are generated without a need for third party enforcement or monitoring and workers choose a consumption policy that leaves them indifferent among realizations of labor demand within this solution it is both costless and efficient for workers to delegate employment decisions to the firm within the context of the model we analyze implications for the equilibrium distribution of wages and for empirical studies of labor supply

labor market effects of unemployment insurance design with the emergence of the great recession unemployment insurance ui is once again at the heart of the policy debate in this paper we review the recent theoretical and empirical evidence on the labor market effects of ui design we also discuss policy issues related to ui design including the structure of benefits the role of liquidity constraints and the pros and cons of a ui system in which the generosity of ui benefits is varying over the business cycle finally we identify potential areas of future research

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

the personal discount rate evidence from military downsizing programs the military drawdown program of the early 1990s provides an opportunity to obtain estimates of personal discount rates based on large numbers of people making real choices involving large sums the program offered over 65 000 separatees the choice between an annuity and a lump sum payment despite break even discount rates exceeding 17 percent most of the separatees selected the lump sum saving taxpayers 1 7 billion in separation costs estimates of discount rates range from 0 to over 30 percent and vary with education age race sex number of dependents ability test score and the size of payment

seniority and efficiency the role of seniority in efficient compensation and employment arrangements between a firm and its labor pool is examined seniority is treated as an endogenous factor in a dynamic model with uncertainty nonseparability over time in preferences and production emerges as a pivotal aspect of seniority provisions in efficient allocations the analysis focuses on two dynamic factors that have been emphasized in the literature nonseparable worker preferences in leisure and a learning by doing process of human capital accumulation copyright 1992 by the editors of the scandinavian journal of economics

job duration seniority and earnings an important stylized fact about labor markets is that workers with longer seniority with their current employer have higher earnings than other workers with the same total labor market experience this study shows that workers in longer jobs earn more throughout than workers in a series of shorter jobs and that the measured positive cross sectional return seniority is largely a statistical artifact due to the correlation of seniority with an omitted variable representing the quality of the worker the job or the worker employer match the implication is tha t earnings do not in fact rise very much with seniority copyright 1987 by american economic association

your retirement and my health behavior evidence on retirement externalities from a fuzzy regression discontinuity design this paper presents evidence on intra household retirement externalities by assessing the causal effect of partner s retirement on own health behaviour in europe we identify partner s retirement effects by applying a fuzzy regression discontinuity rd framework using retirement eligibility as an exogenous instrument for partner s retirement status using data from the survey of health ageing and retirement in europe share we find that while partner s retirement increases own physical activity it also increases smoking by up to 7 cigarettes a day and increases alcohol intake by 1 2 drinks per day furthermore we find that physical activity increases only for individuals that are themselves retired pointing toward compensated effects that arise due to husband s and wife s retirement being complements similarly an increase in alcohol intake is observed only if the individuals are themselves retired and an increase in smoking is only observed if the partner is a smoker suggesting mutual positive externalities and leisure complementarities

humps and bumps in lifetime consumption in this article we argue that the life cycle model that allows demographics to affect household preferences and relaxes the assumption of certainty equivalence can generate hump shaped consumption profiles over age that are very similar to those observed in household level data sources and in particular match the differences in shape across different education groups liquidity constraints or myopia are not required to explain the empirical features of observed life cycle patterns

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

categorizing risks in the insurance industry this paper analyzes the welfare implications of imperfectly categorizing risks in the insurance industry under conditions of asymmetric information firms initially unable to distinguish the risk type of individuals are provided with imperfect information concerning risk membership the paper then compares various wilson type equilibria to determine the welfare implications of firms imperfectly categorizing risks it is shown that only in the case where the initial equilibrium is of the nash no subsidy type is there a pareto type improvement in welfare

baby boomer retirement security the roles of planning financial literacy and housing wealth abstract we compare wealth holdings across two cohorts of the health and retirement study the early baby boomers in 2004 and individuals in the same age group in 1992 levels and patterns of total net worth have changed relatively little over time though boomers rely more on housing equity than their predecessors most important planners in both cohorts arrive close to retirement with much higher wealth levels and display higher financial literacy than non planners instrumental variables estimates show that planning behavior can explain the differences in savings and why some people arrive close to retirement with very little or no wealth

intertemporal preferences and labor supply in this paper the authors examine whether nonseparable preference structures ar e important in characterizing life cycle labor supply using longitud inal data on prime age males from the panel study of income dynamics they estimate a model of life cycle leisure and consumption under un certainty in which intertemporal preferences are allowed to be nonsep arable in leisure the model tests several alternative specifications considered in the literature they investigate the robustness of the ir findings to certain forms of population heterogeneity and types of model misspecification across alternative specifications the autho rs find that the standard assumption of intertemporally separable pre ferences for leisure is not consistent with the data copyright 1988 by the econometric society

why do most italian youths live with their parents intergenerational transfers and household structure more than 80 of italian men aged 18 30 live with their parents we argue that one contributing factor to this remarkably high rate of cohabitation is parents tastes for co residence in order to investigate the role of parental preferences we estimate the effect of exogenous changes in parental income on rates of cohabitation in italy using shiw micro data from 1989 to 2000 the key econometric issue is the potential endogeneity of parental income in order to identify a source of exogenous variation in parental income we use changes in fathers retirement age induced by the 1992 reform of the italian social security system as an instrumental variable for parental income by raising retirement age this reform forced some fathers to remain in the labour market longer than they would have otherwise therefore raising their disposable income we use a two sample instrumental variable tsiv strategy our tsiv estimates indicate that a rise in parents income significantly raises the children s propensity to live at home a 10 increase in annual parental income results in approximately a 10 rise in the proportion of boys living with their parents although we cannot definitely rule out alternative interpretations these results are consistent with our hypothesis that cohabitation is a normal good for italian parents

the retirement consumption conundrum evidence from a consumption survey abstract recent studies have shown that food consumption declines at retirement we use broader definitions of consumption from the consumer expenditure survey and find that the so called retirement consumption puzzle is solved by using comprehensive consumption data

the retirement consumption puzzle in china abstract using data from china s urban household survey and exploiting china s mandatory retirement policy we use the regression discontinuity approach to estimate the impact of retirement on household expenditures retirement reduces total non durable expenditures by 20 percent among the categories of non durable expenditures retirement reduces work related expenditures and expenditures on food consumed at home but has an insignificant effect on entertainment expenditures after excluding these three components retirement does not have an effect on the remaining non durable expenditures it suggests that the retirement consumption puzzle might not be a puzzle if a life cycle model with home production is considered

the retirement consumption puzzle evidence from a regression discontinuity approach in this paper we investigate the size of the consumption drop at retirement in italy we use micro data on food and total non durable household spending covering the period 1993 2004 and evaluate the change in consumption that accompanies retirement by exploiting the exogenous variability in pension eligibility to correct for the endogenous nature of the retirement decision we take a regression discontinuity design approach and make the identifying assumption that consumption would be the same around the threshold for pension eligibility if individuals would not retire we check in our data that a non negligible fraction of individuals retire as soon as they become eligible and estimate at 9 8 the part of the non durable consumption drop that is associated with retirement induced by eligibility we show that such fall is not driven by liquidity problems for the less well off in the population and can be accounted for by drops in goods that are work related expenses or leisure substitutes however we also show that retirement induces a significant drop in the number of grown children living with their parents and this can account for most of the retirement consumption drop

ageing cognitive abilities and retirement we investigate the relationship between ageing cognitive abilities and retirement using the survey on health ageing and retirement in europe share a household panel that offers the possibility of comparing several european countries using nationally representative samples of the population aged 50 the human capital framework suggests that retirement may cause an increase in cognitive decline since after retirement individuals lose the market incentive to invest in cognitive repair activities our empirical results based on an instrumental variable strategy to deal with the potential endogeneity of retirement confirm this key prediction they also indicate that education plays a fundamental role in explaining heterogeneity in the level of cognitive abilities

unemployment fluctuations over the life cycle abstract in this paper we show that i the volatility of worker flows increases with age in us cps data and ii a search and matching model with life cycle features endogenous separation and search effort is well suited to explain this fact with a shorter horizon on the labor market older workers outside options become less responsive to new employment opportunities thereby making their wages less sensitive to the business cycle their job finding and separation rates are then more volatile along the business cycle the horizon effect cannot explain the significant differences between prime age and young workers as both age groups are far away from retirement a lower bargaining power on the youth labor market brings the model closer to the data

retirement and consumption in a life cycle model consumption expenditure declines sharply at the time of retirement for many households but the majority maintain a smooth consumption path a simple life cycle model with uncertainty about the time of retirement can account for this pattern a richer version of the model is calibrated to data from the health and retirement study hrs the median change in consumption expenditure at retirement generated by the model is zero while the mean is negative matching the hrs data however the magnitude of the drop in consumption among households that experience a decline is too small in the model compared to the data

your next of kin or your own career caring and working among the 50 of europe an increasing demand for both formal and informal care is likely to result from the ongoing demographic transition at the same time as there is a further move away from the traditional domestic division of labour public policy making that aims at increasing the supply of informal care necessitates knowledge about the relative importance of various incentives for individual care providers this paper takes as a point of departure that the willingness to supply informal care is partly explained by the extent to which it adversely affects labour market outcomes and analyses the effect on labour market outcomes of providing informal care to one s elderly parent s among the 50 of europe data from share survey of health ageing and retirement in europe was used to examine the association between on the one hand hours of informal care provided and on the other 1 the probability of employment 2 hours worked and 3 wages respectively the results suggest that giving informal care to one s elderly parents is associated with significant costs in terms of foregone labour market opportunities and that these adverse effects vary between countries

do wages rise with job seniority many previous studies have found a strong positive effect of job seniority tenure on wages this paper re examines the evidence using a simple instrumental variables scheme to deal with the fact that tenure is likely to be related to unobserved individual and job characteristics that affect the wage we use the variation of tenure over a given job match as the principal instrumental variable for tenure the variation in tenure over the job is uncorrelated by construction with the fixed individual and job match specific components of the error term of the wage equation our main finding is that the partial effect of tenure on wages is small and that general labour market experience and job shopping account for most wage growth over a career the strong cross section relationship between tenure and wages is due primarily to heterogeneity bias prior researchers see mincer and jovanovic 1981 bartel and borjas 1981 borjas 1981 cline 1979 and mellow 1981 and many others have established that job seniority has a strong positive relationship with wage rates in a cross section or a cross section time series of individuals in this paper we re evaluate the evidence concerning the partial effects on wages of job seniority tenure and total labour market experience the extent to which wages rise with tenure is important for several reasons first and foremost the wage tenure profile is a fundamental question about the structure of earnings over careers second the wage tenure profile is a key determinant of the extent to which the earnings power of individuals is tied to specific jobs and it is important for assessment of the losses suffered by displaced workers hamermesh 1984 third evidence that wages rise with job tenure has been used to explain the decline in quits with tenure since the wage growth on the current job lowers the probability that the worker will locate a superior alternative a growing theoretical literature surveyed in parsons 1984 has taken the evidence of a strong wage tenure profile at face value and sought to provide an explanation for the relationship the most prominent explanation is the theory of specific human capital oi 1962 becker 1962 mincer 1974 parsons 1972 kuratani 1973 and hashimoto 1980 in which the growth of wages with tenure holding experience constant is attributed to the worker s share of investments in firm specific skills more recently lazear 1981 has presented a supervision model of wage growth in which firms defer compensation as a means of inducing workers not to shirk freeman 1977 and harris and holmstrom 1982 provide an explanation for wage growth based on an insurance motive salop and salop 1976 nickell 1976 and guasch and weiss 1982 present adverse selection models of wage growth in which firms use a wage tenure profile as a

the effect of pension reform on pension benefit expectations and savings decisions in japan using the japanese study of aging and retirement jstar which is a new japanese panel survey of people aged 50 and over we find that more japanese in their early 50s expect their level of public pension benefits to decline compared with those in their late 50s and early 60s we also find that recent pension reforms that raised the pensionable age affected the japanese population by increasing the age at which they expect to claim their benefits by almost the exact same amount as the increase in the pensionable age the reforms have also decreased the population s expectations about receiving public pension benefits although this effect is not necessarily significant we also find evidence that anxiety about the public pension programme s future increases private savings

does rising productivity explain seniority rules for layoffs seniority rules for layoffs are a widespread feature of the union and nonunion workplace many explanations have been offered for their existence some emphasize the role of unions but others argue that seniority rules can promote economic efficiency in this context the rules are simple easy to implement and widely regarded as fair they may help control turnover and conserve valuable investments in specific capital they may also be a response to the higher reliability of more experienced workers or they may reflect the higher value young workers place on their time at home or at search in this company a new explanation is hardly needed and this note will not provide one rather i will show that one of the most commonly accepted explanations is based on an assumption that is quite unrealistic one of the most plausible explanations for seniority rules seems to follow directly from human capital theory 2 senior workers having had more time to invest in on the job training are likely to be more productive the seniority rule may therefore be a convenient rule of thumb which ensures that on average it is the less productive workers who are let go while the more productive ones are hoarded until business picks up this argument has been given added weight by some results from implicit contract theory when workers differ in skill levels but share the same value of time at home efficient contracts will always lay off the unskilled workers before the skilled ones the natural corollary again seems to be that where senior workers are more skilled they should be last to go 3 i show in this paper however that when skill grows with experience as human capital models predict this corollary is false in fact human capital growth by itself predicts that it is the most senior workers who should be laid off first previous writers have missed this result because they have implicitly and unrealistically assumed that workers continue to gain productive skills while sitting at home on layoff my analysis will also shed light on some aspects of collective bargaining contracts and on the phenomenon of early retirement the results are first derived in the context of an implicit contract model which is stripped of all but the barest essentials subsequently the robustness of the conclusions is examined in a series of extensions finally some implications of the analysis are discussed

distance to retirement and older workers employment the case for delaying the retirement age this paper presents empirical evidence and a theoretical foundation in favor of the view that the retirement age decision affects older workers employment prior to retirement to the extent that there are search frictions on the labor market the return on jobs is determined by their expected duration the time to retirement is then key to understanding older workers employment countries with a retirement age of 60 are indeed characterized by lower employment rates for workers aged 55 59 based on the french labor force survey we show that the likelihood of employment is significantly affected by the distance to retirement in addition to age and other relevant variables we then extend mccall s job search model by explicitly integrating life cycle features with the retirement decision using simulations we show that the distance effect in interaction with the generosity of unemployment benefits and the depressed demand for older workers explains the low rate of employment just before the eligibility age for the social security pension finally we show that implementing actuarially fair schemes not only extends the retirement age but also encourages a more intensive job search by older unemployed workers jel j22 j26 h55

quantifying the laffer curve on the continued activity tax in a dynastic framework it is argued that the tax on continued activity should be removed by implementing actuarially fair schemes however these schemes cannot fund the expected social security ss deficit this article proposes to give individuals a fraction of the actuarially fair incentives in the case of postponed retirement ss faces a trade off between giving enough incentives to make individuals delay retirement and giving little increase in pensions in order to help finance its expected deficit this trade off is captured by a laffer curve finally when the ss system aims to maximize welfare the optimal tax on postponed retirement is still strictly positive erratum vol 49 issue 4 1539

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

should i stay or should i go an econometric analysis of retirement decisions by couples abstractthis article analyses retirement decisions from a household perspective treating the retirement timing of spouses as potentially interdependent choices to identify the determinants of ret

unemployment participation and worker flows over the life cycle we estimate and report life cycle transition probabilities between employment unemployment and inactivity for male workers using current population survey monthly files we assess the relative importance of each probability in explaining the life cycle profiles of participation and unemployment rates using a novel decomposition method a key robust finding is that most differences in participation and unemployment over the life cycle can be attributed to the probability of leaving employment and the probability of transiting from inactivity to unemployment while transitions from unemployment to employment the job finding probability play secondary roles we then show that a simple life cycle extension of a three state labor search model with leisure shocks can qualitatively replicate the empirical unemployment and participation life cycle profiles without introducing age or worker heterogeneity in market abilities we conclude that models that seek to explain life cycle work patterns should not ignore transitions to and from inactivity

the effects of access to health insurance evidence from a regression discontinuity design in peru in many countries large parts of the population do not have access to health insurance peru has made an effort to change this in the early 2000s the institutional setup gives rise to the rare opportunity to study the effects of health insurance coverage exploiting a sharp regression discontinuity design we find large effects on utilization that are most pronounced for the provision of curative care individuals seeing a doctor leads to increased awareness about health problems and generates a potentially desirable form of supplier induced demand they decide to pay themselves for services that are in short supply

does postponing minimum retirement age improve healthy behaviors before retirement evidence from middle aged italian workers abstract by increasing the residual working horizon of employed individuals pension reforms that rise minimum retirement age can affect individual investment in health promoting behaviors before retirement using the expected increase in minimum retirement age induced by a 2004 italian pension reform and a difference in differences research design we show that middle aged italian males affected by the reform reacted to the longer working horizon by increasing regular exercise with positive consequences for obesity and self reported satisfaction with health

labor supply flexibility and portfolio choice in a life cycle model abstract this paper examines the effect of the labor leisure choice on portfolio and consumption decisions over an individual s life cycle the model incorporates the fact that individuals may have considerable flexibility in varying their work effort including their choice of when to retire given this flexibility the individual simultaneously determines optimal levels of current consumption labor effort and an optimal financial investment strategy at each point in his life cycle we show that labor and investment choices are intimately related the ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante

what accounts for the variation in retirement wealth among u s households even among households with similar socioeconomic characteristics saving and wealth vary considerably life cycle models attribute this variation to differences in time preference rates risk tolerance exposure to uncertainty relative tastes for work and leisure at advanced ages and income replacement rates these factors have testable implications concerning the relation between accumulated wealth and the shape of the consumption profile using the panel study of income dynamics and the consumer expenditure survey we find little support for these implications the data are instead consistent with rule of thumb mental accounting or hyperbolic discounting theories of wealth accumulation jel di d91 e21

hiring older employees do the age limits of early retirement and the contribution rates of firms matter we examine the effects of a finnish pension reform on firms incentives to hire older employees the reform restricted the eligibility ages for early retirement and changed the size related contribution rates of firms according to our theoretical model the positive effect on the values of new hires extends to age groups younger than those directly affected by the reform and the effects are strongest in the largest firms these model predictions were confirmed in a difference in difference in differences analysis on the probability of the hiring of workers of different ages in firms of different sizes

two questions about european unemployment a general equilibrium search model makes layoff costs affect the aggregate unemployment rate in ways that depend on equilibrium proportions of frictional and structural unemployment that in turn depend on the generosity of government unemployment benefits and skill losses among newly displaced workers the model explains how before the 1970s lower flows into unemployment gave europe lower unemployment rates than the united states and also how after 1980 higher durations have kept unemployment rates in europe persistently higher than in the united states these outcomes arise from the way europe s higher firing costs and more generous unemployment compensation make its unemployment rate respond to bigger skill losses among newly displaced workers those bigger skill losses also explain why u s workers have experienced more earnings volatility since 1980 and why especially among older workers hazard rates of gaining employment in europe now fall sharply with increases in the duration of unemployment

the gains from pension reform we classify social security pension systems in three dimensions actuarial versus non actuarial funded versus unfunded and defined benefit versus defined contribution systems recent pension reforms are discussed in terms of these dimensions shifting to a more actuarial system reduces labor market distortions although limiting the scope for redistribution shifting to a funded system may increase saving redistribute income to future generations and distort contermporary labor supply a partial shift to a funded system helps individuals diversify their pension assets a shift from a defined benefit to a defined contribution system means that income risk will be shifted from workers to pensioners

life cycle economies and aggregate fluctuations do the implications for business cycle issues change when we switch from studying infinitely lived representative agent models to more sophisticated demographic structures with finitely lived agents this article addresses that question by using a large overlapping generations model that is calibrated to u s demographic properties microeconomic evidence and national income and product accounts the finding is that the answers obtained are basically the same for the two kinds of models the article also explores the relative volatility of hours across age groups an issue that cannot be addressed by using the infinitely lived representative agent abstraction

union wages temporary lay offs and seniority it is widely believed that the seniority system in conjunction with the collective bargaining process contributes significantly to the determination of the unemployment level in unionized sectors causa i empiricism suggests that real wage demands often remain buoyant in these sectors in the face of seemingly high rates of unemployment among union members james medoff 1979 p 380 convincingly documents the evidence that adjustment through lay offs is substantially greater in unionized firms than in comparable non unionized firms the usual but somewhat informal explanation is that the outcome of union voting is greatly influenced by senior workers who are fairly certain that they will not be laid off when normal shifts in the industry s demand for labour occur 2 these inframarginal workers are believed to vote for higher wage settlements than they would if their own jobs were not so secure

the effect of shocks to labour market flows on unemployment and participation rates this article presents an analysis of labour market dynamics in particular of flows in the labour market and how they interact and affect the evolution of unemployment rates and participation rates the two main indicators of labour market performance our analysis has two special features first apart from the two labour market states employment and unemployment we consider a third state out of the labour force second we study net rather than gross flows where net refers to the balance of flows between any two labour market states distinguishing a third state is important because the labour market flows to and from that state are quantitatively important focusing on net flows simplifies the complexity of interactions between the flows and allows us to perform a dynamic analysis in a structural vector autoregression framework we find that a shock to the net flow from unemployment to employment drives the unemployment rate and the participation rate in opposite directions while a shock to the

do the french pension reforms increase re employment of older unemployed workers abstractthe sustainability of social security financing has pushed authorities to reform their policy to increase the labour market participation of older workers while most of the studies have fo

retirement expectations pension reforms and their impact on private wealth accumulation abstract we estimate the effect of pension reforms on households expectations of retirement outcomes and private wealth accumulation decisions exploiting a decade of intense italian pension reforms as a source of exogenous variation in expected pension wealth the survey of household income and wealth a large random sample of the italian population elicits expectations of the age at which workers expect to retire and of the ratio of pension benefits to pre retirement income between 1989 and 2002 we find that workers have revised expectations in the direction suggested by the reform and that there is substantial offset between private wealth and perceived pension wealth particularly by workers that are better informed about their pension wealth

time to burn calories the impact of retirement on physical activity among mature americans abstract physical activity is crucial for maintaining and improving health especially at advanced ages while retirement increases the amount of time available for physical activity there is only limited evidence regarding the causal effect of retirement on recommended levels of physical activity addressing this gap in the literature we use data from the u s health and retirement study to estimate the causal impact of retirement on meeting the federal government s 2008 physical activity guidelines for americans using official early and normal retirement ages as instruments for retirement our causal iv analyses suggest significant positive effects of retirement on meeting the guidelines these effects are robust with regard to the treatment of unobserved individual specific heterogeneity the measurement of guideline compliance the definition of retirement and respondents health insurance status we also show that the effects of retirement on physical activity are larger for persons with higher levels of education and wealth

age dependent employment protection this paper examines the age related design of firing taxes by extending the theory of job creation and job destruction to account for a finite working life time we first argue that the potential employment gains related to employment protection are high for older workers as they are magnified by the proximity to retirement but higher firing taxes for these workers increase job destruction rates for the younger generations furthermore from a normative standpoint when firms cannot ex ante age direct their search the impact of each generation of unemployed workers on the average return on vacancies makes the internalization of the search costs for the other generations imperfect through the ex post nash bargaining process we show that the first best age profile of firing taxes is typically hump shaped partially in contradiction with existing policies in some european countries taking into account the fact that the human capital of older workers is more specific than general tends to exacerbate these results

books are forever early life conditions education and lifetime earnings in europe we estimate the effect of education on lifetime earnings by distinguishing between individuals who lived in rural or urban areas during childhood and between individuals with access to many or few books at home at age 10 we instrument years of education using compulsory school reforms and find that whereas individuals in rural areas were most affected by the reforms those with many books enjoyed substantially higher returns to their additional education we show that books retain explanatory power even when we select relatively homogeneous groups in terms of the economic position of the household

is there a retirement consumption puzzle in japan evidence from a household panel dataset spanning several years using a unique long run panel of japanese households this paper examines the changes in consumption at retirement the retirement consumption puzzle our analysis shows that households expendi

the impact of imperfectly categorizing risks on income inequality and social welfare the use of imperfect information to categorize risks is a pervasive and controversial phenomenon in the insurance industry although this activity reduces the average extent of vertical price discrimination it is shown in this paper that both highand low risk types may prefer ex ante to knowing the category to which they will be assigned that such information be suppressed furthermore for the lorenz criterion it is shown that under certain restrictive demand conditions the imperfect categorization of risks leads to an increase in inequality the paper employs the wilson e2 equilibrium concept l impact d une categorisation imparfaite des risques sur l inegalite du revenu et le bien etre social l utilisation de renseignements imparfaits pour categoriser les risques est un probleme important qui porte a controverses dans l industrie de i assurance meme si ce phenomene reduit le degre de discrimination verticale par les prix en moyenne i auteur montre que a la fois les personnes dont le coefficient de risques est faible et elev6 et ce avant de savoir a quelle categorie on va les assigner peuvent fort bien preferer que cette information soit supprimee de plus 1 auteur montre que sous certaines conditions de demande restrictives la categorisation imparfaite des risques conduit a un accroissement du degre d inegalite mesure par le critere de lorenz ce memoire utilise le concept d equilibre dit de wilson e2 if insurance firms are unable to distinguish between the risk types of their clients but consumers know their own probability of loss i e if asymmetric information persists then the complication of adverse selection may arise adverse selection occurs when the class of risks or set of classes that purchases insurance differs adversely from that anticipated by the firm for example if a firm offers a contract to low risk types at their actuarially fair rate then high risk types will also purchase it with the result that the firm will earn expected losses hence the problem of adverse selection restricts the ability of firms to offer efficient insurance contracts to low risk types it has been demonstrated by rothschild and stiglitz 1976 that provided the proportion of high risk types in the population is above some critical level a this paper is a revised version of chapter 3 of the author s phd thesis entitled the economics of risk classification in insurance london school of economics and political science 1982 i am indebted to my supervisor lucien foldes and an anonymous referee for useful comments the author alone is responsible for any errors herein canadian journal of economics revue canadienne d economique xvil no 3 august aotlt 1984 printed in canada imprimd au canada 0008 4085 84 557 568 1 50 c canadian economics association this content downloaded from 157 55 39 215 on wed 31 aug 2016 04 39 57 utc all use subject to http about jstor org terms

home is where the equity is mortgage refinancing and household consumption applying a permanent income model with exogenous liquidity constraints and mortgage behavior household refinancing when mortgage interest rates are historically high and rising a persistent empirical puzzle is explained using data from the panel study of income dynamics households experiencing an unemployment shock and having limited initial liquid assets to draw upon are shown to have been 25 more likely to refinance 1991 94 on average such liquidity constrained households converted over two thirds of every dollar of equity they removed into current consumption as mortgage rates plummeted 1991 94 producing an estimated expenditure stimulus of at least 28 billion

is there a retirement consumption puzzle evidence using subjective retirement expectations abstract previous research finds a systematic decrease in consumption at retirement a finding that is inconsistent with the life cycle permanent income hypothesis if retirement is an expected event in this paper we use workers subjective beliefs about their retirement dates as an instrument for retirement after demonstrating that subjective retirement expectations are strong predictors of subsequent retirement decisions we still find a consumption decline at retirement for workers who retire when expected however our estimates of this consumption fall are about a third less than those found when we instead rely on the instrumental variables strategy used in prior studies

retirement and home production a regression discontinuity approach existing studies show that individuals who retire replace some private consumption with home production but do not consider joint behavior of couples here we analyze the causal effect of retirement of each partner on hours of home production for both partners in a couple our identification strategy exploits the earliest age retirement laws in france enabling a fuzzy regression discontinuity approach we find that own retirement significantly increases own hours of home production and the effect is larger for men than for women moreover retirement of the female partner significantly reduces male hours of home production but not vice versa

consumption versus expenditure previous authors have documented a dramatic decline in food expenditures at the time of retirement we show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals using a novel data set that collects detailed food diaries for a large cross section of u s households we show that neither the quality nor the quantity of food intake deteriorates with retirement status we also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income these results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income whereas measures of expenditures obscure the distinction

equilibrium unemployment and retirement we first propose some new empirical evidence on the fact that the labor market conditions matter for the retirement decision at the individual level we investigate whether unemployed workers retire before employed workers other things being equal our main objective in this paper is then to propose an equilibrium unemployment approach to retirement decisions that allows us to derive the positive and normative features of retirement decisions when search and matching frictions are considered two main conclusions emerge the retirement decision of unemployed workers depends on the labor market frictions whereas that of employed workers does not the existence of search externalities makes the retirement age of unemployed workers intrinsically suboptimal considering social security policy issues we show that the complete elimination of the implicit tax on continued activity is not necessarily welfare optimizing in a second best world where the labor market equilibrium suffers from distortions

is there a retirement savings puzzle in this paper we ask whether households are saving enough for their retirement we use data on income expenditure and expenditure components to analyse patterns of behaviour at and around the time of retirement for successive date of birth cohorts we compare periods of unemployment to periods of retirement and separate expenditures into categories reflecting work related expenditures basic necessities and other goods we find that income typically falls by more at unemployment than retirement but the reverse is true for expenditure we observe falls in expenditure at retirement for all expenditure categories using a stochastic life cycle model including mortality rates we assess the anticipated impact of retirement on consumption against that of unemployment the inter relationship between goods and leisure explains a large part of the persistent fall in expenditure at retirement we argue that the only way in which the life cycle hypothesis could be reconciled with the remaining unanticipated dip in consumption would be with the systematic arrival of unexpected adverse information at the time of retirement

pension wealth and household savings in europe evidence from sharelife we use recently collected retrospective survey data to estimate the displacement effect of pension wealth on household savings the third wave of the survey of health ageing and retirement in europe sharelife collects information on the entire job history of the respondent a feature missing in most previous studies we show that addressing measurement error problems is crucial to estimate the displacement effect when using survey data we find that each euro of pension wealth is associated with a 47 61 cent decline in non pension wealth using robust median regression in the presence of biases from measurement errors and omitted unobserved variables we estimate a lower bound to the true offset between 17 and 30 significantly different from zero instrumental variables regression estimates although less precise suggest full displacement