Flexible Retirement Prof. Axel Börsch-Supan, Ph.D. Munich Center for the Economics of Aging (MEA) CINTIA Opening Lecture, Torino, 24 November 2014

Transcription

1 Flexible Retirement Prof. Axel Börsch-Supan, Ph.D. Munich Center for the Economics of Aging (MEA) CINTIA Opening Lecture, Torino, 24 November 2014

2 Flexible Retirement Prof. Axel Börsch-Supan, Ph.D. Munich Center for the Economics of Aging (MEA) CINTIA Opening Lecture, Torino, 24 November 2014

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4 S c h a u b ild 1.6 E n t w i c k l u n g d e r A l t e r s s t r u k t u r d e r B e v ö l k e r u n g i n d e n a l t e n u n d n e u e n B u n d e s l ä n d e r n Babyboom/Babybust Pre funding Real (!) funding of pensions Fiscal consolidation M än ne r (n eue L.) M ä n n e r ( a lte L.) F ra u e n (n e u e L.) F raue n (alte L.) Longevity M än ner (neu e L.) M änn er (alte L.) F raue n (ne ue L.) F rau en (a lte L.) Distribution: 0 Minimum pension, Pillar 0 or similar Life course adaptation M än ne r (n eue L.) M ä n n e r ( a lte L.) F ra u e n (n e u e L.) F raue n (alte L.) Effective retirement age 3. Fertility M än ner (neu e L.) M änn er (alte L.) F raue n (ne ue L.) F rau en (a lte L.) B ir g /F lö th m a n n, I B S, U n iv. B ie lefe ld Quality/Quantity Education and health

5 Expansion: 1972: Introduction of flexible retirement at 63/60 Reforms: 1992: Gross to net wage indexation, introduction of actuarial adjustments 2001: Private pension pillar and minimum pension 2004/07: Sustainability factor, retirement age > 67 Reversal: 2013/14: Retirement at 63, flexible retirement at 60

6 Expansion: Average entry/exit age yrs All Year

7 Gross to net wage indexation: Volumen Volume [1000 Euro] Benefit duration Bezugszeit [Years] Tausende Amount per year times Number of years 1,200 1, Zahlbetrag Benefit size [Euro/month] Zahlbertr

8 Labor market policies: 1. increase of the retirement age by 2 years 2. decrease of the job entry age by 2 years 3. increase of female labor force participation (e.g.: convergence to 90 percent of the rate for men) 4. reduction of unemployment to the NAIRU rate => Would add some 15 percent to labor force

9 Changes 2007 to 2011: Men Women Denmark Denmark MPISOC

10 Labor market policies: 1. increase of the retirement age by 2 years 2. decrease of the job entry age by 2 years 3. increase of female labor force participation (e.g.: convergence to 90 percent of the rate for men) 4. reduction of unemployment to the NAIRU rate Has added some 17 percent to labor force!

11 Employment age 60 65: Beschäftigungsquoten in Deutschland in Prozent Headwind through more employment in spite of tailwind through demography bis unter 65 Jahre 55 bis unter 60 Jahre 60 bis unter 65 Jahre

12 Pension policies: Earnings related pay as you go pension system Actuarial adjustments at early retirement Indexation to dependency ratio Sweden & Italy: NDC;Germany: Quasi NDC wrapped as DB ( sustainability factor ) Supplemental funded system(s) => Would change pillar weights (10 > 40%) and labor supply incentives

13 Riester private Occupational Other private MPISOC

14 Pension policies: Earnings related pay as you go pension system Actuarial adjustments at early retirement Indexation to dependency ratio Sweden & Italy: NDC;Germany: Quasi NDC wrapped as DB ( sustainability factor ) Supplemental funded system(s) => Has changed pillar weights (10 > 25%) (No direct data on labor supply incentives)

15 Reduction of implicit debt:

16 Employment Minimum wage ( 8.50/$12.00) General tendency to less flexibility in the labor market Pension package Mütterrente & Retirement at 63 after 45 service years Direct effect of Rente mit 63 : ca jobs Indirect effects of entire Rentenpaket : ca jobs

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18 EP = 44.4 EP = 46.2 EP = 33.1 EP = 35.9 Männer Frauen 100% krank 100% krank 95% 1.8 Jahre 2.5 Jahre self mini 95% 1.3 Jahre 1.9 Jahre self mini 90% sonst ausbild 90% sonst ausbild 85% schule 85% schule 80% 75% 39.0 Jahre Zivi pflege kinder 34.4 Jahre 36.7 alg_all SVP 80% 75% 32.6 Jahre Jahre Zivi pflege kinder alg_all SVP 70% WZ35 WZ45 70% WZ35 WZ45

19 3.5 Month with illness (Age 50 59) WZ35 WZ45 WZ35 WZ45 Männer Frauen

20 Widely attacked as textbook example for time inconsistency Law was anyway passed by large margin (grand coalition) Applies to some (priviledged) workers Not harmful? LF=42m, but symbolic character Limited to cohorts Public statement that retirement at age 67 will not be touched, neither sustainability factor (DB > DC) Glas a bit less full. X

21 Currently: Labor income (100%) Pension income (100%) Aim: Labor income (100%) Partial pension Labor income Pension (100%) Likely outcome: Labor income (100%) Partial pension Labor income Pension (100%)

22 Currently working full time: reduce labor supply Currently no working at all: increase labor supply Hours supplied Labor supply Hours supplied LF participation rate LF participation rate Participation rate [Persons] likely to increase Labor supply [hours] ex ante undetermined 7/18

23 8/18

24 Hours Worked Total hours decrease -29% Austria (Winter Ebmer et al. 2012) Work volume after reform +1% Participants work marginally longer Retirement Age Part-time scheme reduces work volume Ineffective measure to support employment of the elderly 10/18

25 Finland Part Time Pensions in Finland Source: OECD 2001, Ilmakunnas (2006) 2000 reform: Increased flexibility but no reform of lack of actuarial adjustment: > Strong decline of labor force participation and work hours 2005 reform: > No effect on part time pension on the expected prob. to continue working in the window /18

26 Total Flexibility in Sweden Empirical evidence Sweden Pensions are drawn earlier 14/18

27 Flexibility without (correct) actuarial adjustments: yrs All Year

28 Theme 2: Old-age employment Pension policy changes and reactions (Börsch-Supan/Schnabel) Share of year old males retired USA Japan Canada Spain Sweden UK Germany France R 2 = 0,8554 Belgium 0,00 2,00 4,00 6,00 8,00 10,00 Index of implicit tax rate on working longer Italy Netherlands l d Gruber and Wise (1998)

29 PROBIT: RECEIPT OF A PENSION MEN WOMEN entry entry ov 0.038*** 0.048*** (0.002) (0.003) retage_actadj 0.843*** 1.381*** (0.035) (0.038) retage_noactadj 0.956*** 1.067*** (0.041) (0.035) ssw 0.000*** (0.000) (0.000) income *** 0.000*** (0.000) (0.000) income *** 0.000*** (0.000) (0.000) sick_v 0.299*** 0.357*** (0.008) (0.010) edu_d (0.066) (0.065) edu_d * (0.098) (0.140) nrkids * (0.059) (0.015) 29

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31 Why? Myths! 1. Solidarity gap : Who is threatened? Who will gain/loose? 2. Lump of labor fallacy ( old crowd out young ) 3. More subtle: Health ( too ill to work ) 4. Productivity ( too outdated to work ) 5. Sideeffects of inactivity ( use it or loose it )

32 Share of persons aged 65+ with income below 50% of median OECD Definition. Quelle: OECD (2012) Pensions at a Glance, OECD, Paris.

33 Place made free by the old Share of early retirees among males (in %) Share of year old males already retired Netherlands UK USA Sweden Japan Belgium France Canada Germany Italy Spain R 2 = 0, Unemployment rate (in rate%) (data: OECD Employment Outlook) Lack of place for for the young Lump of labor fallacy

34 100% employment rate 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% year empm20-24 empm25-54 empm55-59 empm60-64

35 Health at age in Europe Evidenz zum Gesundheitszustand älterer Menschen: Altersgradient Self rated: percent excellent, very good and good Selbsteinschätzung gut, sehr gut oder ausgezeichnet [in Prozent] Functional: percent with no ADL limitation Keine Funktionseinschränkung [in Prozent] Objective: Grip strength kg with std deviation Greifkraft [in kg] in orange Schwankungsbreite MPISOC 35

36 Evidenz zum Gesundheitszustand älterer Menschen: Altersgradient Expected healthy life after age 65 (no limitations in daily activities), men EU-27 Belgien Tschechische Republik Dänemark Deutschland Irland Griechenland Spanien Frankreich Italien Ungarn Niedernlande Österreich Polen Portugal Finnland Schweden Großbritannien

37 1.2 mio observations over 4 years Errors as dis-productivity Insurance Company

38 Myth 2: Older workers are less productive 38

39 (Rohwedder and Willis 2010 with SHARE data)

40 The demographic problem is not an economic problem since we have the tools to handle it, and they have proven to be successful. It is rather: a political problem of time inconsistency and many misperceptions What can we economists do? Show costs of time inconsistency: macroeconomic growth, microeconometric analyses of incentive effects Dispel myths through carefully collected evidence