Tuesday, February 9, 2016

New papers from the Social Science Research Network

"How Does Retirement Impact Health Behaviors? An International Comparison"
CESR-Schaeffer Working Paper No. 2015-033

NORMA B. COE, University of Washington - Department of Health Services, Boston College - Center for Retirement Research
Email: nbcoe@uw.edu
GEMA ZAMARRO, University of Arkansas - Department of Education Reform, Center for Economic and Social Research (CESR)
Email: gzamarro@uark.edu

Recent work has found that retirement may lead to improvements in health, although the literature has not yet reached a consensus. This could be due to actual differences in the relationship of interest between countries or due to methodological differences between studies. The first goal of this paper is to estimate the causal impact of retirement on self-reported health using consistent estimation techniques on three harmonized longitudinal data sets, representative of the United States, England, and continental Europe. Using panel data and instrumental variable methods exploiting variation in statutory retirement ages, this paper then estimates how retirement causally affects health and health-related behaviors. We find, in all settings, retirement leads to better self-reported health, but that magnitude of the effect varies considerably. We also find that retirement increases the amount of exercise for those retiring from nonphysical jobs in all settings. The effect of retirement on addictive behaviors (drinking and smoking) was more mixed across settings. These findings suggest that public health interventions targeted to get near retirees to exercise more could allow countries to reap the benefits of a longer-working life while minimizing the associated health decline.

"Families and Social Security"
CESifo Working Paper Series No. 5655

HANS FEHR, University of Würzburg - Institute of Economics and Social Sciences
Email: hans.fehr@mail.uni-wuerzburg.de
MANUEL KALLWEIT, German Council of Economic Experts
Email: manuel.kallweit@uni-wuerzburg.de
FABIAN KINDERMANN, University of Bonn - Faculty of Law & Economics, Netspar
Email: fabian.kindermann@uni-bonn.de

The present paper quantifies the importance of family insurance for the analysis of social security. We therefore augment the standard overlapping generations model with idiosyncratic labor productivity and longevity risk in that we account for gender and marital status. We simulate the abolition of pay-as-you-go pension payments, calculate the resulting intergenerational welfare changes and isolates aggregate efficiency effects for singles and families by means of compensating transfers. In accordance with previous studies that take into account transitional dynamics, we find that abolishing social security creates significant efficiency losses. Most importantly, however, we show that singles are substantially worse off from a shut-down of old-age payments compared to married couples. A decomposition of the efficiency loss reveals that this difference can be almost exclusively attributed to the insurance role of the family with respect to longevity risk. Since a married individual inherits her spouse’s wealth after his death and the likelihood that both partners reach a very old age is relatively small, marriage serves as an insurance device against longevity risk for the surviving partner.

"Retirement Planning in the Light of Changing Demographics"

HONG WANG, Monash Business School
Email: hong.s.wang@monash.edu
BONSOO KOO, Monash Business School
Email: bonsoo.koo@gmail.com
COLIN O'HARE, Monash University - Department of Econometrics & Business Statistics
Email: colin.ohare@monash.edu

With increasing longevity and decreasing fertility rates, governments and policy makers are increasingly engaged in the question of long term retirement planning. In many cases this has included emphasising the need for individuals to take more responsibility for their own retirement planning through tax incentives, compulsion and changes to the age at which state retirement benefits become available. In the case of Australia, as is considered here, long term retirement planning has been focused around the development of a compulsory defined contribution (DC) superannuation system. Here we investigate the interaction between population aging and the sustainability of the superannuation system by modelling a general superannuation scheme to compare the adequacy of retirement funds under a number of alternative scenarios. The model incorporates stochastic longevity forecasts and provides insight into the sufficiency of compulsory retirement saving both now and future. We find that the current pension scheme is more robust to longevity improvements for mid-class individuals however significant gaps arise for low-income individuals as longevity improves. Without addressing these issues, government expenditure is expected to increase substantially.

1 comment:

WilliamLarsen said...

Families and Social Security

“Using our calibrated model economy, we study the role of social security for different household types. Specifically, our counterfactual is a scenario in which the government suddenly and unexpectedly prevents the accumulation of new pension claims for households. Yet, all acquired pension rights – especially those of current retirees – remain untouched and need to be financed by current and future generations.”

This is a rather disingenuous assumption. Stop Social Security cold turkey for all new claims, yet require the continue payment of social security to current beneficiaries. Of course this will hurt all people. The correct method is to stop payment for all. This of course shifts the cost to those later in their working lives and those who were current beneficiaries.

“Consequently, moving towards a fully funded system induces efficiency losses.”

What causes efficiency losses? First, Social Security is taking funds from workers who would have done something totally different with the funds than government. Individuals would have saved, paid down debt, paid for college, healthcare or a number of other things. In simple terms workers would control the growth of economy. When Social Security takes the funds from workers and transfers them to beneficiaries, in efficiencies pop up due to artificial stimulation of the sectors in the economy that cater to beneficaries that would not be there without Social Security.

“To test how accurately our model predicts the savings behavior of different household types, we use data from the European Household Finance and Consumption Survey (HFCS) provided by the ECB for Germany.”

The analysis used data from European Household Finance. This could be a problem for a number of reasons. The US built highways while Europe built mass transit. The US has a much lower population than Europe. Europe is more socialistic with less disposable income. Healthcare in Europe uses a form or rationing (they do not cover transplants, hip-knee replacement for some based on age/health and their system relies on a full queue leading to long wait times, but much lower costs. Then there is the housing difference. The US is more materialistic.

“The data was collected between 2010 and 2011”

Why not look at data from 1950, 1960, 1970, 1980, 1990 and look for trends? When you look at a sinking ship, what do you expect to find? Benie Madoff ran a Ponzi scheme for decades. Do you think these people thought they were poor or had less wealth during those years? Then take a look 1 and 5 years later, what happened to them? Cause and Effect should be looked at.

“First, as social security stops paying old-age benefits, individuals have to provide for resources in retirement years on their own. This induces a massive increase in private savings and therefore productive capital which causes the economy to significantly expand. As capital becomes abundant, its return declines substantially along the transition. In the new long-run equilibrium the capital stock has increased by about 50 percent which leads to an interest rate that per year is about 2 percentage points lower than in the initial equilibrium.”

I agree 100%. This is what happens when the economy is artificially stimulated beyond its means for 79 years. This is why looking at years 1937 through 2015 is critical. Something this report did not do. What this report did not do is identify how SS is going to continue to pay scheduled benefits. If it pays only payable benefits, is that in efficiency?

“The reason is that the government now heavily issues public debt to finance shortages in the budget of social security and therefore absorbs almost all additional savings.”

The general budget is responsible for the $18.9 Trillion debt. SS short fall today and since 2010 is not SS problem. SS deposited the money in the US Treasury and now they are taking it out. The problem is the General Budget ran deficits every year since 1958.