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)     

A Contingent Claims Model of Corporate Pension Obligations*

This study develops a contingent claims model for valuing the implicit market value of the pension claim associated with defined benefit pension plans. In this model, the firm issues pension, debt, and equity claims. These claims have joint access to two underlying portfolios: corporate and pension. The changes in the market values of these two portfolios are assumed to follow a joint lognormal diffusion process. By imposing terminal boundary conditions implied by Employment Retirement Income Security Act (ERISA) rules and the pension insurance provisions of the Pension Benefit Guaranty Corporation (PBGC) on the partial differential equation, a solution for the pension value is obtained. This quasi-market measure of the value of the pension claim may be represented by a portfolio consisting of four components: (1) a risk-free discount bond with face value equal to promised pension benefits; (2) a short put on pension assets with exercise price equal to pension benefits; (3) a long call on 30 percent of corporate assets with exercise price equal to the face value of secured corporate debt; and (4) a short call on 30 percent of corporate assets with a stochastic exercise price which depends on the terminal value of the pension fund. A numerical example using 1992 and 1993 financial statement data from six major U.S. corporations is provided. This example illustrates the usefulness of the model's prediction and the potential effect of theoretical pension values on corporate debt-equity ratios.     

The Implementation of European Community Equality Legislation on Social Security: International Experiences*

Abstract. The article evaluates the EC Equality Directives in matters of social security adopted by the Council in 1978 and 1986. We ask whether these EC Directives are appropriate instruments to reduce manifest disadvantages women face in the national social security systems. In the first part, some features are singled out in the European pension systems which are particularly disadvantageous to women. In the second, the EC Directives are analysed with respect to their material scope and the underlying normative concepts. Thirdly, some problems with respect to the legislative implementation of the Social Security Directives in the UK, the Netherlands and Germany are discussed. It is argued that the Directives, in prescribing equal treatment, do not lead to substantial improvement for women.     

Operational research in social security

In this paper we describe the work of the Department of Health and Social Security Operational Research (OR) Unit in Social Security. This work started in 1972 and with one break of eighteen months still continues. One of the authors (AFH) led the OR team from the beginning until September 1979 and the other (MJP) was the customer for much of its work. We describe briefly the organisation of social security work, and go on to talk about some of the projects attempted by the OR team. We will not shrink from describing some of the successes but we will concentrate most attention on the things which did not achieve the expected results. Readers will make their own judgements about the extent to which the failures were due to circumstances or to inadequacies of the team, or its leader.     

Expert Elicitation of the Value per Statistical Life in an Air Pollution Context

The monetized value of avoided premature mortality typically dominates the calculated benefits of air pollution regulations; therefore, characterization of the uncertainty surrounding these estimates is key to good policymaking. Formal expert judgment elicitation methods are one means of characterizing this uncertainty. They have been applied to characterize uncertainty in the mortality concentration‐response function, but have yet to be used to characterize uncertainty in the economic values placed on avoided mortality. We report the findings of a pilot expert judgment study for Health Canada designed to elicit quantitative probabilistic judgments of uncertainties in Value‐per‐Statistical‐Life (VSL) estimates for use in an air pollution context. The two‐stage elicitation addressed uncertainties in both a base case VSL for a reduction in mortality risk from traumatic accidents and in benefits transfer‐related adjustments to the base case for an air quality application (e.g., adjustments for age, income, and health status). Results for each expert were integrated to develop example quantitative probabilistic uncertainty distributions for VSL that could be incorporated into air quality models.     

The Effects of Health Insurance and Self‐Insurance on Retirement Behavior

This paper provides an empirical analysis of the effects of employer‐provided health insurance, Medicare, and Social Security on retirement behavior. Using data from the Health and Retirement Study, we estimate a dynamic programming model of retirement that accounts for both saving and uncertain medical expenses. Our results suggest that Medicare is important for understanding retirement behavior, and that uncertainty and saving are both important for understanding the labor supply responses to Medicare. Half the value placed by a typical worker on his employer‐provided health insurance is the value of reduced medical expense risk. Raising the Medicare eligibility age from 65 to 67 leads individuals to work an additional 0.074 years over ages 60–69. In comparison, eliminating 2 years worth of Social Security benefits increases years of work by 0.076 years.     

Optimal Strategies for Traditional versus Roth IRA/401(k) Consumption During Retirement

We establish an algorithm that produces an optimal strategy for retirees to withdraw funds between their tax‐deferred accounts (TDAs), like traditional IRA/401(k) accounts, and their Roth IRA/401(k) accounts, in the context of a financial model based on American tax law. This optimal strategy follows a geometrically simple, intuitive approach that can be used to maximize the size of a retiree's bequest to an heir or, alternatively, to maximize a retiree's portfolio longevity. We give examples where retirees following the approach currently implemented by major investment firms, like Fidelity and Vanguard, will reduce their bequests by approximately 10% or lose 18 months of portfolio longevity compared to our optimal approach. Further, our strategy and algorithm can be extended to many cases where the retiree has additional, known yearly sources of money, such as income from part‐time work, taxable investment accounts, and Social Security.      

Using Expert Judgments to Explore Robust Alternatives for Forest Management under Climate Change

We develop and apply a judgment‐based approach to selecting robust alternatives, which are defined here as reasonably likely to achieve objectives, over a range of uncertainties. The intent is to develop an approach that is more practical in terms of data and analysis requirements than current approaches, informed by the literature and experience with probability elicitation and judgmental forecasting. The context involves decisions about managing forest lands that have been severely affected by mountain pine beetles in British Columbia, a pest infestation that is climate‐exacerbated. A forest management decision was developed as the basis for the context, objectives, and alternatives for land management actions, to frame and condition the judgments. A wide range of climate forecasts, taken to represent the 10–90% levels on cumulative distributions for future climate, were developed to condition judgments. An elicitation instrument was developed, tested, and revised to serve as the basis for eliciting probabilistic three‐point distributions regarding the performance of selected alternatives, over a set of relevant objectives, in the short and long term. The elicitations were conducted in a workshop comprising 14 regional forest management specialists. We employed the concept of stochastic dominance to help identify robust alternatives. We used extensive sensitivity analysis to explore the patterns in the judgments, and also considered the preferred alternatives for each individual expert. The results show that two alternatives that are more flexible than the current policies are judged more likely to perform better than the current alternatives on average in terms of stochastic dominance. The results suggest judgmental approaches to robust decision making deserve greater attention and testing.     

Kind of Black: The Musicians' Labour Market in Italy

It is estimated that only 5 per cent of musicians in Italy are regularly employed. In an attempt at understanding such a peculiar situation, we build a theoretical model of the musicians' labour market in which we embed the main institutional features of the Italian system. The presence of taxation encourages the formation of a black labour market for musicians and discourages talented agents from becoming full‐time musicians in all second‐best economies. In Italy both tendencies are particularly strong, and exacerbated by the peculiarities of the pension system for musicians. These inefficiencies might be corrected by a twofold policy: the reform of the pension system, highly desirable but unlikely to be politically feasible in the current Italian institutional setting, and the introduction of a sufficiently large unemployment benefit for musicians, step that has a general interest for any second‐best economy and not only for the case of the musicians' labour market, and that might instead be viable under certain circumstances.     

基于精算模型参数调整的农村养老金可持续性仿真研究

随着人口老龄化进程加剧和新型农村社会养老保险制度全面覆盖,农村老年人群与养老需求激增,农村养老金收支失衡与不可持续风险快速加大。本文基于新农保筹资和给付的双重视角,应用总体法构建农村养老金收支与平衡精算模型,基于全国东、中、西部三省六县(市、区)新农保试点地区实地调研数据(有效问卷5031份),通过甄选并调整关键参数,预测农村养老金收支及差额变化与发展趋势,对其可持续性进行仿真研究,针对预测结果提出增强农村养老金可持续性的改革思路。研究结果表明,政策参数缴费率、补贴率和经济参数农民收入增长率、基金投资收益率的提高及其联动增长均有利于增强农村养老金的可持续性,而养老金计发月数的增减对农村养老金可持续性的影响方向并不统一,二者的联合增长对农村养老金的长期可持续性发展具有积极作用。本研究对于丰富、发展农村养老金精算建模与仿真理论、方法及农村社会保障制度完善、政策改进具有重要的理论意义和实践价值。     

Measuring Expectations

To predict choice behavior, the standard practice of economists has been to infer decision processes from data on observed choices. When decision makers act with partial information, economists typically assume that persons form probabilistic expectations for unknown quantities and maximize expected utility. Observed choices may be consistent with many alternative specifications of preferences and expectations, so researchers commonly assume particular sorts of expectations. It would be better to measure expectations in the form called for by modern economic theory; that is, subjective probabilities. Data on expectations can be used to relax or validate assumptions about expectations. Since the early 1990's, economists have increasingly undertaken to elicit from survey respondents probabilistic expectations of significant personal events. This article discusses the history underlying the new literature, describes some of what has been learned thus far, and looks ahead towards making further progress.     

Will the Dismantlement of Early Retirement Schemes Increase Older Unemployment? A Competing‐risk Analysis for Belgium

On the basis of administrative data for Belgium, we estimate a competing‐risk model on transitions from employees aged 50 and older into unemployment, early and old‐age retirement while accounting for forward‐looking work disincentives. Our estimates are used to simulate a cut in early retirement benefits. Although this would enhance the financial sustainability of the social security system, our simulations predict a strong increase in unemployment among older blue‐collar workers in traditional industries. Members of private saving plans or occupational pension schemes and highly educated workers are predicted to move into the old‐age pension system.     

Vocabularies of Motive and Temporal Perspectives: Examples of Pension Fund Engagement and Disengagement

Prior research on institutional investors’ role in corporate governance draws a distinction between engaged and disengaged pension funds. The aim of this study was to shed more light on how pension fund practitioners talk about engagement and disengagement. Using insights from 35 in‐depth, semi‐structured interviews and round‐table discussions with pension fund trustees, executives, investment officers and financial intermediaries, we identify different types of vocabularies and temporal perspectives used to account for different stances towards engagement. We highlight a tension between a seemingly causal relationship between accounts and future behaviour and argue that these ‘accounts’, ‘vocabularies’ and ‘uses of the past’ in themselves need to be treated as an object of study because they may represent not simply the individual motivations but rather the expressions of extant norms in the broader social context of financial markets. An important policy implication is that perceived realities of investment are unlikely to cause a change in pension fund behaviour because participants seem to decouple their view of the world from their impact on the world.     

待遇预定制养老基金资产组合与缴费计划最优决策——基于随机波动率Heston模型及Legendre对偶变换法

待遇预定制养老金制度在中国应用非常广泛,缴费制定和资产配置是此类养老金管理的两大核心问题。由此,面对随机波动的现实市场,文章针对待遇预定制养老基金的资产组合管理问题,应用最优控制理论,选用对数效用函数,建立Heston随机波动率模型;在难以求解随机微分Bellman方程的情况下,应用Legendre变换,将原来问题转化为对偶问题,从而求得原问题的解析解。在理论上,进一步丰富了资产组合问题的随机最优控制模型的构建和随机微分方程的求解理论。在实践上,确定了养老金管理风险资产配置比例和缴费水平,给出了最优决策与总资产、发放待遇、净资产与风险溢价之间的数量关系,从而实现养老基金管理的最优资产配置和最低缴费水平的效用目标。     

(Un)Verst?ndlichkeit des Steuerrechts und Nachfrage nach Steuerberatungsdienstleistungen: Ein Experiment

Although increasing the understandability of tax law is a popular postulation, the consequences for individual decisions and the distribution of the tax burdens are far from clear. For this reason, the effects on the demand for tax advice are analyzed in an experimental setting: the participants had to rank pension plans while the understandability of the tax system was modified. We show that an increasing understandability of tax law significantly decreases the willingness to pay for tax advice and that this relationship is moderated by the individuals?? level of education. In fact, in our experiment only individuals with a high education level benefit from the improved understandability of tax law.     

Demographic Trends and Pension System in Italy: an Assessment of 1990s Reforms

Abstract. In the last decade the Italian pension system underwent many changes. The process has started in 1992 with three major reform laws (passed in 1992, 1995 and 1997), supplemented by many other minor changes. Among the innovations introduced in the pay‐as‐you‐go social security system, the most important one is the more explicit link between pensions and contributions, and pensions and life expectancy at retirement. The purpose of this paper is to provide an assessment of both the short‐term and the long‐term effects of the social security reforms on pension expenditure. Notwithstanding the slowdown in the growth rate of the pension expenditure/GDP ratio, the measures adopted so far will not be sufficient to eliminate the existing social security deficit in the next decades, particularly under the assumption of moderate economic performance and rapid population ageing. Reducing public pension expenditure requires the completion of the 1995 reform, a more rapid move towards a multi‐pillar pension scheme, and the implementation of the much needed growth‐enhancing structural reforms.     

Microsimulating the Evolution of Italian Pension Benefits: the Role of Retirement Choices and Lowest Pensions Indexing

A few years after the introduction of the Amato and Dini laws, a renewed debate on reforming the Italian pension system and on modifying its structure and technical parameters is taking place. The present work simulates individual reactions to systemic changes, distinguishing among the different typologies of workers the categories of dependent (private and public) and self‐employed ones. This approach allows us to perform a general micro‐analysis of the effects of past reforms on family pension income distribution and average individual pension benefits. Furthermore, it makes it possible to assess the consequences of legislator's choices such as the indexation of the lowest pensions (‘assegni sociali’ and ‘pensioni integrate al minimo’) to wages or to inflation. Finally, a Monte Carlo analysis projects future inequality and poverty trends with a remarkable accuracy and allows to verify the robustness of our results.     

Intergenerational Transfers,and Public Pensions in a Non Altuistic Setting: a Public Choice Model

The paper presents a model based on non‐altruistic individuals, where middle aged and old individuals influence the decisions about public social security system. This is an alternative or a complement to private intergenerational transfers. Fertility is endogenous, as children are seen as an assets in the process of transferring resources to old age by the network of intergenerational intrafamily transfers. Expectations about the Government social security budget balance play a crucial role. We also present some empirical estimates of the fertility and pension ‘demand’ function for some developed countries. It emerges that both can be treated as endogenous, and the results are coherent with the theory.     

Reducing Overconfidence in the Interval Judgments of Experts

Elicitation of expert opinion is important for risk analysis when only limited data are available. Expert opinion is often elicited in the form of subjective confidence intervals; however, these are prone to substantial overconfidence. We investigated the influence of elicitation question format, in particular the number of steps in the elicitation procedure. In a 3‐point elicitation procedure, an expert is asked for a lower limit, upper limit, and best guess, the two limits creating an interval of some assigned confidence level (e.g., 80%). In our 4‐step interval elicitation procedure, experts were also asked for a realistic lower limit, upper limit, and best guess, but no confidence level was assigned; the fourth step was to rate their anticipated confidence in the interval produced. In our three studies, experts made interval predictions of rates of infectious diseases (Study 1, n = 21 and Study 2, n = 24: epidemiologists and public health experts), or marine invertebrate populations (Study 3, n = 34: ecologists and biologists). We combined the results from our studies using meta‐analysis, which found average overconfidence of 11.9%, 95% CI [3.5, 20.3] (a hit rate of 68.1% for 80% intervals)—a substantial decrease in overconfidence compared with previous studies. Studies 2 and 3 suggest that the 4‐step procedure is more likely to reduce overconfidence than the 3‐point procedure (Cohen's d = 0.61, [0.04, 1.18]).     

IS THE ENDOWMENT EFFECT AN EXPECTATIONS EFFECT?

A hallmark result within behavioral economics is that individuals' choices are affected by current endowments. A recent theory due to Kőszegi and Rabin ( 2006 , Quarterly Journal of Economics, 121, 1133–1165) explains such endowment effect with a model of expectations‐based reference‐dependent preferences. Departing from past work, we conduct complementary experiments to disentangle expectations—verified probabilistic beliefs held by subjects—from other features of endowment—such as “assignment” to a good—hence allowing us to compare the effect of expectations with that of other variations. While mere assignment can affect choices, we do not find a large role in the effect for Kőszegi–Rabin expectations.