REVISER - Research Training Network on Health, Ageing and Retirement

ENEPRI launched on 1 August 2003 a research training network in the area of Demography, Ageing, Health and Retirement in Europe. Trainees participate in research conducted in this area in one of the following six institutes: CEPS, Centre for European Policy Studies (Brussels, Belgium); ETLA, The Research Institute of the Finnish Economy, (Helsinki, Finland); DIW, the DeutschesInstitutfurWirtschaftsforschung (Berlin, Germany); CPB, the Netherlands Bureau for Economic Analysis (The Hague, Netherlands); FEDEA, Fundacion de Estudios de EconomiaAplicada (Madrid, Spain); and LEGOS, Laboratoire d'Economie et Gestion des Organisation de Sante, University of Paris IX Dauphine (Paris, France). This Research Training Network receives finance under the 5th EU Research Framework Programme.

Publications of REVISER fellows

Peter Haan and Michal Myck: Apply with Caution: Introducing UK-Style In-Work Support in Germany 

Estimates of the labour supply effects of recent UK reforms in the area of direct taxes and benefits show that policy can have a significant influence on the level of employment. We confirm this in a simulation of an in-work support system introduced into the German tax and benefit system. Our simulation results suggest that introducing in-work tax credits in Germany would increase the employment of single individuals by over 100,000 but it would simultaneously reduce the labour supply of individuals in couples by about 70,000. We find that tax credits would cause significant declines of labour supply among both women and men in two-earner couples. The outcome derived for men in this study is especially important as it is markedly different from all results found for the UK, where the overall response for men has always been positive. Our estimation results call for a high degree of caution insofar as "importing" UK-style tax credits into Germany is concerned. In-work support based on family income would reinforce the existing work disincentives for secondary earners through joint income taxation, reducing the employment levels of both men and women living in couples.

Michal Myck and Howard Reed: Tax and Benefit Reforms in a Model of Labour Market Transitions 

This paper presents a method for taking advantage of labour market transitions to identify the effects of financial incentives on employment decisions. The framework used is very flexible and by imposing few theoretical assumptions it allows us to extend the modelled sample relative to structural models. The authors take advantage of this flexibility to include disabled persons in the model and to jointly analyse the behaviour of disabled and non-disabled persons. A great deal of attention is paid to the appropriate modelling of financial incentives in the labour market. In the case of disabled persons, taking account of financial incentives turns out to be an extremely complex process but one that in the end turns out to be well worth the effort. The model is used to compare reactions in the labour market to marginal changes in financial incentives and also to model one of the most important reforms of the UK Labour government - the introduction of the Working Families' Tax Credit. The methodology relies on matching the transition and income data derived from cross-sectional and panel surveys, and could be used in other countries for which detailed, reliable income data are not collected in a panel format. 

Juraj Draxler: Globalisation and Social Risk Management in Europe - A Literature Review 

Globalisation has become a catch-all term imbuing public discussions with a sense of urgency about something that often cannot even be properly identified. This literature review presents an outline of arguments about what globalisation actually can mean, how to measure it and how to face it.
Large parts of the world have seen an explosion in trade, cross-border investment flows and innovation transfers in recent years. Quantitatively, this can be captured in the appropriate statistics. On the other hand, in trying to understand the drivers of these changes, it is necessary to describe the changing institutions and actors that play a significant role in this process. Some authors point to the role of the multinational enterprise as a uniquely defining feature of globalisation.
It is difficult to disentangle the effect of globalisation from the evolution of the most-developed economies towards a "post-industrial" mode of operation. On top of this, countries are increasingly affected by endogenous social changes such as the diminished role of the nuclear family and population ageing (resulting from falling birth rates and rising longevity).
Policy-makers face demands to help citizens cope with the risks arising out of this new state of affairs. In addition to describing globalisation, this paper provides an overview of the possible responses. In particular, it focuses on the growing body of literature that seeks to re-focus the attention on social protection as a "productive factor" and as something that should be seen as part of the larger framework of "social risk management". The latter concept stresses the need to look at social protection as only one component of a larger framework, which contains macroeconomic conditions as well as various state, market and individual tools for managing personal risks. 

Christina Felfe: The Child Penalty - A Compensating Wage Differential? 

Many studies document that women with children tend to earn lower wages than women without children (a shortfall known as the "child penalty" or "family gap"). Despite the existence of several hypotheses about the causes of the child penalty, much about the gap in wages remains unexplained. This study explores the premise that mothers might substitute income for advantageous, non-pecuniary job characteristics. More specifically, the hypothesis to be investigated is that if the labour market rewards working arrangements that involve disamenities, to some extent the child penalty might be a compensating wage differential for the disamenities avoided by mothers.
In order to assess the impact of motherhood on the choice between pecuniary and non-pecuniary job features in Germany, data from the German Socio-Economic Panel (GSOEP) is used. The longitudinal nature of the data allows a comparison of working women before and after the birth of their first child. Furthermore, the GSOEP provides detailed information on personal attributes, job characteristics and job satisfaction, which enables the application of the following three steps to test the hypothesis. First, an event study is used to analyse the changes in the characteristics of a woman's job around the birth of her first child. The features of interest are time, workload and flexibility. Second, job characteristics are included by their utility (proxied by job satisfaction) for a mother. Third, following the approach of hedonic wage regressions, these (dis)amenities are included in the wage regression in order to see whether a trade-off exists between pecuniary and non-pecuniary job characteristics. The results suggest that to some degree the child penalty can be interpreted as a compensating wage differential. 

Christina Felfe: Objective Trends and Perceptions of Health Status in Germany 

This paper identifies previous trends and future prospects surrounding the health status of the population and the utilisation of health care services, based on data from the German Socio-Economic Panel (1984-2004). Health status and the demand for health care services is examined in conjunction with the following variables: health satisfaction; the degree to which health status hinders the fulfilment of daily life activities; disability and chronic illnesses; and the probability, frequency and duration of hospital stays. The first part of the paper describes the main trends associated with these indicators. Then a further analysis is undertaken with regard to the determinants of health status. For this latter purpose, a sample of about 21,000 persons (aged 16 and older) has been used. The determinants are assessed against two measures of health status: a subjective measure, which is self-reported satisfaction with health, and an objective measure, which is the degree of being hindered by health in daily life activities. An interesting question explored alongside the findings is whether health care expenditures have increased because the overall health of the population has worsened or because expectations have risen. 

Alex Armstrong, Nick Draper, Andre Nibbelink and Ed Westerhout: Demographic Uncertainty and Fiscal Policy 

It is well known by now that population ageing threatens the sustainability of fiscal policies in many countries. Although a number of policy options are available to address the problem, the uncertainty surrounding the future development of the population complicates matters.
This paper analyses the economic, intergenerational and welfare effects of several alternative taxation policies that can be used to close the fiscal sustainability gap: immediate tax smoothing, delayed tax smoothing and balanced budget policies. A distinction is made between a consumption tax and a labour income tax. In addition, the influence of demographic uncertainty on the results of these policies is analysed from a number of perspectives. Simulated population shocks show the effect of demographic volatility on macroeconomic and fiscal variables. Stochastic simulations are presented to produce probabilistic bounds for the future development of the economic outcomes and to analyse the issue of optimal fiscal policy under uncertainty. 

Corinne Mette: New Member States and the Dependent Elderly 

The 10 new member states that joined the European Union in May 2004 have increased the population of the EU-15 by 20% and together account for almost 16.4% of the total EU-25 population. The current ageing of the population in the EU-15 has highlighted other challenges besides the well-known problems of financing pension and health care systems. It has also highlighted the risks of a rise in the dependent elderly population and the need to adjust social welfare systems accordingly. Given the emerging risks and problems in the EU-15, one may wonder about the situation in the new member states. This study shows that while the new member states do not yet appear to be facing the problem of elderly dependency on the same scale as the EU-15 countries, in the coming decades it is likely they will have to contend with it to a much greater degree.
The study also indicates that provision for dependent elderly care in the 10 countries does not seem to be fully established as yet. That being said, Malta and Slovenia, countries that will have a considerable proportion of the oldest old among their populations in the near future, are distinguishable from the others in that they appear better prepared in terms of dependent elderly care. Although Poland is considered to be far from prosperous as regards economic and social development, in terms of population ageing - particularly provision for the dependent elderly - it also looks better placed than most of the other new member states, which appear to be less generous in assistance provided to the dependent elderly. The three Baltic States are notable in that the share of GDP they allocate to this category is lowest, even though they are expected to have the oldest populations in the years to come. 

Matthias Deschryvere: Labour Force Behaviour of Men and Women in Elderly Two-Adult Households: Evidence from EU Countries

This paper studies the effect of individual and spousal characteristics on the labour force participation of individuals living in elderly two-adult households. The comparative approach taken here studies men and women separately and uses the first eight waves (1994-2001) of the European Community Household Panel (ECHP). We compare results of three countries: Finland (a country with a high degree of women's labour force participation), Belgium and Germany (countries where women's labour force participation is relatively low). Results of multinomial logit model estimations suggest that are substantive differences between countries as well as between the behaviour of men and women across the various channels out of employment. We find evidence that a wife exerts a stronger influence on a husband's retirement decision. One explanation for this may be found in asymmetric complementarities of leisure - a husband's enjoyment of non-employment may depend much more on his wife also being non-employed than vice versa. There is evidence that the complementarities of leisure hypothesis dominates the hypothesis concerning the added worker (where the labour supply of one spouse increases when the other spouse's income is reduced or disappears). These results are in line with evidence from the US and have some important implications: simulations of the effect of changes in the pension system on men's retirement may yield incorrect answers if spillover effects are ignored.

Matthias Deschryvere: Health and Retirement Decisions: An update of the literature

This paper surveys the relation between the labour supply and the health of the elderly, based on major studies conducted earlier and new literature. Most of the empirical literature on the topic is drawn from American data, although new European datasets have enabled analysis in several EU countries. The paper complements previous surveys in that it includes recent European results and overviews most of the latest developments in micro-modelling issues. The quest for unbiased estimates of the effect of health on retirement is characterised by several challenges. One important challenge is the endogenous character of the relationship between health and retirement. A second challenge concerns the reporting bias to which certain health measures may be prone. The empirical literature surveyed suggests that poor health reduces the capacity to work and has a substantial impact on labour force participation. The exact magnitude, however, is sensitive to both the choice of health measures and the identification assumptions. For that reason a comparison of health effects between different studies is difficult. Nevertheless, what has been proven is that the old assumption that objective health measures are superior to subjective health measures needs to be applied with caution.

Corinne Mette: Wellbeing and Dependency among the European Elderly: The Role of Social Integration

This study aims at highlighting the importance of social integration on the well-being of dependent elderly living at home. This question is important because, as we can observe, favouring social activities is not a priority for social policies regarding dependent elderly in Europe. Now, social activities and contacts improve dependent elderly's well-being. Therefore, as depression is one of the factors leading to a dependency situation, to attach greater importance to social measures favouring dependent elderly social integration should allow to decrease their depression rate and, consequently, should allow to decrease their demand for care too. The data used in this study stem from the European Community Household Panel (ECHP). Major results are: health perception is strongly and positively correlated with satisfaction with the main activity. The importance of the correlation decreases however a little when social integration variables are included in the model. Except for "owning a phone", these latter variables have equally significant effects on satisfaction with the main activity. Dependent elderly who are member of a club, those who often meet their friends and relatives and those who often talk with their neighbours declare a higher satisfaction than the rest. Satisfaction is largely correlated with the country of residence. Dependent elderly from Southern countries and from Ireland declare to be less satisfied with their main activity than those from North or Central Europe. In terms of housing situation, having a comfortable dwelling leads to a higher satisfaction while living in a household composed by several persons leads to a lower satisfaction. The standard of living is linked with satisfaction: both household and personal income increase satisfaction. Lastly, dependency-related social transfers have no effect on satisfaction with the main activity.

Tarja Viitanen: Informal Elderly Care and Female Labour. Force Participation across Europe

This paper uses the European Community Household Panel (ECHP) to analyse the relationship between the dynamics of labour force participation and informal care to the elderly for a sample of women aged 20-59 across 13 European countries. The analysis has two focal points: the relative contributions of state dependence as well as observed and unobserved heterogeneity in explaining the dynamics in women’s labour force participation and the existence and consequences of non-random attrition from the ECHP. The results indicate positive state dependence in labour force participation in all 13 EU countries used in the analysis. The share of unobserved heterogeneity accounts for between 45% and 86% of the total variation in labour force participation. Informal care-giving is found to have a significant, negative impact on the probability of employment only in Germany. Nevertheless, analysis of different sub-groups indicates that the impact is largest for middleaged women and also for single women in several EU countries.

Hannu Piekkola and Matthias Deschryvere: Option Values for Retirement: Effects of Public Incentives to Postpone Retirement in Finland, Belgium and Germany

This paper studies the determinants of the retirement transitions of Europeans and focuses on the impact of social security systems on retirement behaviour. The analysis uses the first eight waves (1994-2001) of the European Community Household Panel. Based on these survey data, option values - which express, for each retirement age, the trade-off between retiring now and keeping the option open for some later retirement date - are constructed for each sampled individual in three countries: Finland, Belgium and Germany. The overall results of the duration and probit models show that the option value, well-being at work and health all have a significant impact on retirement decisions irrespective of gender. The analysis shows that policies to raise marginal incentives and, hence, option values are effective, especially in Finland. The incentives have the highest impact on the early retirement stage. In Germany and Belgium we see spikes in retirement at age 60 or 65, whereas the retirement path in Finland is smooth from age 56 and option values do not significantly decrease with age. Job satisfaction is an important predictor of future withdrawal from work. Poor health also has an important effect on retirement risk, especially in Germany.