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Facilitating longer
working lives: the need,
the rationale, the how
David A. Wise
Harvard University and
the NBER
Theme
• Social and economic choices in
societies must adjust as the age
structure of the population
changes
• In particular, some of the bounty
of longer lives must be allocated
to prolonging the labor force
participation of older workers.
Three parts
1. The need and the gain
2. The rationale—better health
1) Emphasize reduction in mortality
because it is an indicator of health
comparable across countries
2) Also health and capacity to work
(US)
3. How to facilitate longer working
lives
The international social security
project
• Draw heavily on this ongoing
project
• Comparative results from 12
countries
• Based on analysis by research
teams in each country
• Here, for illustration, will often
compare the US, France, and the
UK
Project Participants
Belgium
Canada
Denmark
France
Germany
Italy
Japan
Netherlands
Spain
Sweden
United Kingdom
United States
Alain Jousten, Mathieu Lefèbvre, Sergio Perelman,
Pierre Pestieau, Raphaël Desmet, Arnaud Dellis, and
Jean-Philippe Stijns
Michael Baker, Kevin Milligan, and Jonathan
Gruber
Paul Bingley, Nabanita Datta Gupta, and Peder J.
Pedersen
Luc Behaghel, Melika Ben Salem, Didier Blanchet,
Thierry Debrand, Muriel Roger, Antoine Bozio, Ronan
Mahieu, Louis-Paul Pelé, and Emmanuelle Walraet
Axel Börsch-Supan, Hendrik Juerges, Simone Kohnz,
Giovanni Mastrobuoni, and Reinhold Schnabel
Agar Brugiavini and Franco Peracchi
Takashi Oshio, Satoshi Shimizutani, Akiko
Sato Oishi, and Naohiro Yashiro
Adriaan Kalwij, Arie Kapteyn and Klaas de Vos
Pilar García-Gómez, Sergi Jiménez-Martín, Judit Vall
Castelló, Michele Boldrin, and Franco Peracchi
Lisa Jönsson, Mårten Palme, and Ingemar Svensson
James Banks, Richard Blundell, Antonio Bozio, Carl
Emmerson, Paul Johnson, Costas Meghir, and Sarah Smith
Kevin Milligan, David Wise, Courtney Coile, Peter
5
Diamond, and Jonathan Gruber
The need
• The changing demographic
environment over the past four or
five decades represents both an
achievement and a problem.
• Mortality rates have declined and
life expectancy has increased
substantially in industrialized
countries.
• This is the achievement.
The need cont.
• What is the problem?
• Declining birth rates and fewer young
people, together with longer lives,
have meant that the proportion of old
to young is increasing.
• As the number of older persons
increases, health care costs will rise
– because of the increase in the number of
older people,
– also because advancing technology will
likely create better and perhaps more
expensive health care treatments.
The need cont
• And the cost of public pension (social
security) programs will rise
• But there will be fewer in the labor
force to pay for these increasing
social security and health care costs.
• The problem has been magnified by
the departure of workers from the
labor force at younger ages along with
substantial increases in the number of
years they spend in retirement.
The need cont
• Thus the theme above: some of
the bounty of longer lives must
be allocated to prolonging the
labor force participation of older
workers.
• It will not be feasible to use all of
the increase in longevity to
increase years in retirement.
The need cont--the gain from
prolonged LFP:
• The increase in the LFP of older
persons will increase production
(GDP)
• The increase in production will
increase tax revenues
• The increase in tax revenues will
increase the funds available for social
security and health care costs
• And, the increase in LFP will likely
increase personal saving (by default
under the personal account systems)
The rationale
• Better health and ability to work
longer
• Emphasize decline in mortality
– An important indicator of health and
– Available on comparable basis in
all countries
• Also decline in disability and
potential for work (US)
The rationale cont
• Decline in disability—US
Share of Men in Fair or Poor Health: mid-1970s
and mid-1990s
0.40
0.35
Share
0.30
0.25
0.20
0.15
Mid-1970s
0.10
11
Years
Mid-1990s
0.05
0.00
20
25
Source: Cutler and Liebman
30
35
40
45
50
Age
55
60
65
70
The rationale cont
• Decline in mortality—US, UK,
France
How old do you need to be to "feel like" a 65 year
old in the 1960s?--Men in the UK
76
74
Age
72
70
9.8
Years
68
66
64
62
1960
1970
1980
1990
Year
2000
2010
How old do you need to be to "feel like" a 65 year
old in the 1960s?--Men in the US
76
74
Age
72
70
9.2
Years
68
66
64
62
1960
1970
1980
1990
Year
2000
2010
How old do you need to be to "feel like" a 65 year
old in the 1960s?--Men in France
76
74
Age
72
70
9.6
Years
68
66
64
62
1960
1970
1980
1990
Year
2000
2010
The rationale cont
• Employment and “health”
(mortality)
Employment by age, US, UK, and France, 2007
100%
90%
Employment rate
80%
70%
60%
50%
US
40%
France
UK
30%
20%
10%
0%
Age
Mortality by age, US, UK, and France, 2007
4%
4%
Mortality rate
3%
3%
US
2%
UK
France
2%
1%
1%
0%
Age
Employment and mortality by age, men in the US
1977 and 2007
100%
7.0%
90%
Employment 1977
Employment 2007
6.0%
Series3
80%
Mortality 1977
5.0%
60%
4.0%
50%
3.0%
40%
30%
2.0%
20%
1.0%
10%
0%
0.0%
Age
Mortality 2007
Mortality
Employment
70%
Employment by mortality, men in the US, 1977 &
2007
100%
90%
80%
Employment
70%
60%
2.7%
1977
50%
2007
1.5%
40%
30%
20%
10%
0%
0%
1%
2%
3%
4%
Mortality
5%
6%
7%
Employment and mortality by age, men in France
1977 and 2007
100%
7.0%
Employment 1977
90%
Employment 2007
6.0%
Series3
Mortality 1977
5.0%
70%
60%
4.0%
50%
3.0%
40%
30%
2.0%
20%
1.0%
10%
0%
0.0%
Age
Mortality 2007
Mortality %
Employment %
80%
Employment by mortality, men in FR, 1977 & 2007
100%
90%
Employment
80%
70%
60%
50%
1977
2007
40%
2.7%
30%
20%
1.1
10%
0%
0%
1%
2%
3%
4%
Mortality
5%
6%
7%
Rationale cont—potential for work
in the US
• Cutler and Meara (2010)
• Estimate labor force status for
people aged 62-64 based on
demographic and health
characteristics
• Then use estimates to simulate
LF status for older groups
Labor force status in the US, with and without
Socurity & Medicare Benefits, age 65-69, men
0.7
0.6
0.6
0.53
Proportion
0.5
0.4
Labor Force Observed
0.38
0.35
Labor Force Simulated
Series2
0.3
Disabbled Observed
Disabbled Simulated
0.2
0.1
0.08
0.11
0.05
0.01
0
HS/Less
Any College
The How (to facilitate longer working
lives)
1. Eliminate Social Security
provisions that induce early
retirement and penalize work at
older ages—implicit tax on work.
(Must include disability insurance
and special unemployment
programs.)
2. Abandon false excuses—the
“boxed economy” proposition
3. Provide more flexible work
arrangements
27
The how 1
• Implicit tax on work
• Compensation from working:
– Wage earnings
– Increase in future retirement
benefits
• [Decline in PV of benefits if work
another year] / [Net earnings if
work another year] =[Implicit tax
on work]
Proportion of men 55-65 out of the labor force
versus tax force to retire
0.7
Belgium
R2 = .86
France
0.6
Italy
Netherlands
UK
0.5
Spain
Canada
Germany
0.4
US
Sweden
Tax Force ER to 69
0.3
0
0.5
1
1.5
Logarithm of Tax Force
Gruber and Wise (1999)
2
2.5
• Have been increases in LFP
since mid 1990s
Year
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1972
1974
1970
1968
Proportion
Employment of men 60-64, US, UK, FR, 1968-2005
0.9
0.8
0.7
0.6
0.5
US
0.4
UK
FR
0.3
0.2
0.1
0
The how 2
• Abandon the false “boxed economy”
view of the labor market
• From the UK e.g.:“We will extend the
voluntary Job Release Scheme to men
over 60 so that those who want to retire
early vacate jobs for those who are
currently unemployed. This could take as
many as 160,000 people out of
unemployment and into work.” (The
United Kingdom: the 1987 Labour Party
manifesto says: SOURCE …)
THE BOXED ECONOMY
Unemployed
Younger Workers
Retired
Older Workers
The how 2—no evidence for boxed
economy
• Tax force to retire and youth
employment
• Within-country “natural
experiments”
• Cross-country comparisons
• Panel regression results
Tax force to retire, men 55-65 out of the labor
force, youth 20-24 unemployed (1995)
0.7
Belgium
2
R = 0.81
0.6
UK
Proportion
0.5
Spain
Canada
0.4
US
France
Netherlands
Italy
Germany
Sweden
0.3
R2 = 0.23
Japan
0.2
0.1
0
0
1
55-65 not LF
2
3
20-24 U 1995
4
5
6
Tax force to retire
Log. (55-65 not LF)
7
8
9
10
Linear (20-24 U 1995)
Tax force to retire, men 55-65 out of the labor
force, Youth 20-24 employed (1995)
0.7
R² = 0.811
0.6
UK
Proportion
0.5
Spain
Canada
0.4
US
1.8
Belgium
France
Netherlands
Italy
1.5
Germany
1.2
Sweden
0.3
0.9
Japan
0.2
R² = 0.102
0.6
0.1
0
0.3
0
1
55-65 not LF
2
3
20-24 EMP 1995
4
5
6
Tax force to retire
Log. (55-65 not LF)
7
8
9
10
Linear (20-24 EMP 1995)
Response to reforms in France,
1971-1983 and 1993, unadjusted data
0.7
0.6
0.5
0.4
Rate
0.3
E 55-64
0.2
E 20-24
0.1
UE 20-24
0
-0.1
-0.2
-0.3
1971
1993
2005
Diff 71-93
Year and difference
Diff 93-05
Comparison of the 6 countries with the least to the 6 with
the greatest increase in the 55-64 employment, from
beginning of last upturn in 55-64 employment, adjusted
data--difference
0.14
0.12
D
0.1
i
0.08
f
f 0.06
e 0.04
r 0.02
e
0
n
-0.02
c
-0.04
E 55-64
E 20-24
UE 20-24
-0.06
The 6 countries with
The 6 countries with
least increase in 55-64 greatest increase in 55employment
64 employment
Difference greatest
minus least
Panel estimates of the effect of the LFP of persons
55 to 64 on the unemployment and employment
rate of younger persons, with controls
Specification
5-year log
difference
Youth 20-24
UE
EMP
-0.905 0.486
(0.329) (0.090)
Prime Age 25-54
UE
EMP
-0.960
(0.260)
0.144
(0.028)
A one percentage point increase in the employment of older
persons reduces the the unemployment rate of youth by -0.905
percentage points and increases the employment rate of youth by
0.486 percentage points.
No evidence for the boxed
economy proposition
• The overwhelming weight of
the evidence, as well as the
evidence from each of the
several different methods of
estimation, is contrary to the
boxed economy proposition.
43
Conclude
1. Some of the bounty of longer lives
must be allocated to prolonging the
labor force participation of older
workers.
2. Improving health makes this a
reasonable response to demographic
trends
3. To facilitate longer working lives must:
1) Eliminate public and private pension
plan provisions that penalize work at
older ages
2) Must abandon the boxed economy view
of the labor market
1/--страниц
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