Conference on the Economics of Aging

May 10 and 11, 2013
David Wise of Harvard University, Organizer

Angus Deaton, Princeton University and NBER, and Arthur Stone, Stony Brook University

Grandpa and the Snapper: the Well-Being of the Elderly Who Live with Children

Deaton and Stone note that elderly Americans who live with people under age 18 have lower life evaluations than those who do not. These elderly also experience worse emotional outcomes, including less happiness and enjoyment, and more stress, worry, and anger. In part, these negative outcomes come from selection into living with a child, especially selection on poor health, which is associated with worse outcomes irrespective of living conditions. Yet even with controls, the elderly who live with children do worse. This is in sharp contrast to younger adults who live with children, likely their own, and whose life evaluation is no different in the presence of the child once background conditions are controlled for. Parents, like elders, have enhanced negative emotions in the presence of a child, but unlike elders, also have enhanced positive emotions. In parts of the world where fertility rates are higher, the elderly do not appear to have lower life evaluations when they live with children; such living arrangements are more usual, and the selection into them is less negative. They also share with younger adults the enhanced positive and negative emotions that come with children. The misery of the elderly living with children is one of the prices of the demographic transition.

James Poterba, MIT and NBER; Steven Venti, Dartmouth College and NBER; and David Wise

The Nexus of Social Security Benefits, Health, and Wealth at Death (NBER Working Paper No. 18658)

Social Security benefits are the most important component of the income of a large fraction of older Americans. A significant fraction of elderly Americans approach the end of life with few financial assets and no home equity, relying almost entirely on Social Security benefits for support. Whether an individual reaches late-life with positive non-annuity wealth depends importantly on health, which is quite persistent over the lifetime. Persons in poor health in old age have a higher-than-average probability of having experienced low earnings while in the labor force, which puts them at greater risk of having low Social Security benefits in retirement. While the progressivity of the Social Security benefit formula provides a safety net to support low-wage workers in retirement, a noticeable share of the elderly, especially those in single-person households, still have income below the poverty level in their last years of life. Many of these individuals have few assets to draw on to supplement their income, and are in poor health. In general, low assets and low income in old age are strongly related to poor health. Poterba, Venti, and Wise explore this nexus and describe the relationship between Social Security benefits and the exhaustion of non-annuity assets near the end of life. They examine the relationship between the draw down of assets between the first year an individual is observed in the AHEAD data (1995) and the last year that individual is observed before death, and that individual's health, Social Security benefits, and other annuity benefits. They conclude that Social Security and defined benefit pension benefits are strongly "protective" of non-annuity assets, with a negative relationship between these income flows and the likelihood of exhausting non-annuity assets. They also find that poor health is an important correlate of the draw down of non-annuity wealth.

James Banks and Elaine Kelly, Institute for Fiscal Studies, and James Smith, RAND Corporation

Spousal Health Effects: the Role of Selection

Banks, Kelly, and Smith investigate the issue of partner selection in the health of individuals in England and the United States who are at least 50 years old. They find a strong and positive association in family background variables, including education of partners and their parents. Adult health behaviors -- such as smoking, drinking, and exercise -- are more positively associated in England than in the United States. Childhood health indicators also are positively associated across partners. In general, these correlations are more positive for first than for subsequent partnerships. Especially for women in both countries, poor childhood health is associated with future marital disruptions. These researchers also investigate the pre- and post-partnership smoking behavior of couples. They find that smokers are much more likely to partner with smokers and non-smokers with non-smokers. This relationship is far stronger in England than in the United States. In the United States, there is evidence of asymmetric partner influence in smoking, in that men's pre-marriage smoking behavior influences his female partner's post-marriage smoking behavior, but there does not appear to be a parallel influence of women's pre-marriage smoking on their male partner's post-marital smoking. These relationships are much more parallel across genders in England.

Arie Kapteyn and Erik Meijer, University of Southern California

A Comparison of Different Measures of Health and their Relation to Labor Force Transitions at Older Ages

Kapteyn and Meijer discuss three indexes of health that have been proposed in the literature and compare their theoretical and empirical properties, using data from the Survey of Health, Aging and Retirement in Europe. They then estimate regression models for labor force transitions at older ages and investigate the consequences of using different measures of health. The measures differ both in the underlying statistical model and in the variables included in them. A comparison of distributional properties exhibits marked differences in kurtosis and skewness, while the correlation between the measures is modest. When using the health indexes to explain transitions into retirement, their explanatory power does not appear to vary much. However, when explaining transitions into disability, the index proposed by Poterba, Venti, and Wise (2011, 2013) provides a better fit than the competing indexes. It appears that this is mainly because of the variables included in the Poterba, Venti, and Wise index, such as health conditions and health care utilization variables, which are either wholly or partly missing from the other indexes.

Michael Hurd, RAND Corporation and NBER, and Pierre Carl Michaud and Susann Rohwedder, RAND Corporation

The Lifetime Risk of Nursing Home Use

Hurd, Michaud, and Rohwedder estimate the lifetime distribution of stays in nursing homes using ten waves of HRS data covering the population age 50 and above. Using both non-parametric and parametric approaches that account for censoring, they estimate that a 50-year-old has a 60 percent chance of ever entering a nursing home before he dies and that, conditional on any stay, the average duration is just over a year. They show that stays at the end of life, typically not captured in core interviews, are very important for assessing lifetime exposure. The HRS performs exit interviews with proxies for those who died. Excluding exit interviews yields lifetime risk under 40 percent. Being female, white, and a non-smoker are associated with higher lifetime risk because of lower (competing) mortality risk and higher nursing home risk at older ages.

Florian Heiss, University of Mainz; Daniel McFadden, University of California, Berkeley and NBER; Till Stowasser, Würzburg; and Joachim Winter, University of Munich

Understanding the SES Gradient in Health Among the Elderly: The Role of Childhood Circumstances

Individuals' socioeconomic status (SES) is positively correlated with their health status. While the existence of this gradient may be uncontroversial, the same cannot be said about its explanation. Stowasser, Heiss, McFadden, and Winter extend the approach of testing for the absence of causal channels developed by Adams et al. (2003), which in a Granger-causality sense promises insights on the causal structure of the health-SES nexus. They introduce some methodological refinements and integrate retrospective survey data on early childhood circumstances into this framework. They confirm that childhood health has lasting predictive power for adult health. They also uncover strong gender differences in the intertemporal transmission of SES and health: while the link between SES and functional, as well as mental, health among men appears to be established rather late in life, the gradient among women seems to originate from childhood circumstances.

David Cutler, Harvard University and NBER, Kaushik Ghosh, NBER; and Mary Beth Landrum, Harvard School of Public Health

Evidence for Significant Compression of Morbidity in the Elderly U.S. Population

The question of whether morbidity is being compressed into the period just before death has been at the center of health debates in the United States for some time. Compression of morbidity would lead to longer life, but to less rapid increases in medical spending than if life extension were accompanied by expanding morbidity. Using nearly 20 years of data from the Medicare Current Beneficiary Survey, Cutler, Ghosh, and Landrum examine how health is changing by time period up until death. They show that functional measures of health are improving, especially the farther away from death the person surveyed is. Disease rates are relatively constant at all times until death. On net, there is strong evidence for compression of morbidity based on measured disability, but the evidence based on disease-free survival is less clear.

Amitabh Chandra, Harvard University and NBER; David Malenka, Dartmouth-Hitchcock Medical Center; and Jonathan Skinner, Dartmouth College and NBER

On the Diffusion of Drug-Eluting Stents

Before 2003, cardiologists used bare-metal stents to perform revascularization for blockages in the heart. In April of 2003, the FDA approved the use of coated anti-proliferative, but more expensive, drug-eluting stents that are designed to reduce re-narrowing of the artery at the location of the original stent. Adoption of these stents was rapid but uneven; in the year following their introduction, drug-eluting stents comprised 83 percent of total stents among Medicare enrollees in the top quintile of hospitals, but just 33 percent in the low quintile hospitals. Chandra, Malenka, and Skinner use Medicare claims data to test several models of diffusion, and they find empirical support for models of expertise (that is, better quality hospitals adopt quicker) and spillover models with correlated diffusion rates. There is suggestive evidence that hospitals that gained the greatest incremental benefit from drug-eluting stents diffused more rapidly, but there is no support for either models of competitive adoption, knowledge spillovers, or profit maximization. The fact that the most productive hospitals were those most likely to adopt new technology highlights the empirical pitfalls of estimating returns to new technologies based on instruments such as distance to hospitals.

John Beshears, Stanford University and NBER; James Choi, Yale University and NBER; David Laibson, Harvard University and NBER; and Brigitte Madrian, Harvard University and NBER

Who Uses the Roth 401(k), and How Do They Use It?

Using administrative data from twelve companies that added a Roth 401(k) option between 2006 and 2010, Laibson, Beshears, Choi, and Madrian describe the characteristics of Roth contributions. Approximately one year after the Roth is introduced, 9 percent of 401(k) participants have positive Roth balances. Roth participation is more than twice as high among 401(k) participants who were hired after the Roth introduction than among 401(k) participants who were hired before the Roth introduction. In essence, once an employee joins a 401(k), she becomes passive/inattentive, thereby reducing the likelihood of reacting to the introduction of a new Roth option. Conditional on contributing to the Roth, 66 percent of employee contributions go to the Roth. Half of employees contribute to both the Roth and another 401(k) account, consistent with a tax diversification motive. Roth usage is decreasing in age and less likely among female employees. There is only a weak correlation with salary and tenure once the authors control for other employee characteristics.

Gabor Kezdi, Central European University; and Robert Willis, University of Michigan and NBER

Expectations, Aging and Cognitive Decline

Expectations play an important role in decisions under uncertainty. Yet we have limited empirical knowledge about how expectations are formed, how they change, and how they affect behavior, especially in the population in general. In particular, we know little about whether and how aging affects expectations, or what the consequences may be for important decisions. Kezdi and Willis use longitudinal data from the HRS to document general patterns in expectations in various domains with respect to aging, and they investigate the potential role of cognitive decline in those patterns. They focus on two aspects of expectations: optimism and uncertainty. With the notable exception of survival expectations, they find that optimism decreases and uncertainty increases with age in five different domains, controlling for time, cohort, and selection effects. Cognitive decline plays a modest but statistically significant role in explaining the decline of optimism and a less significant role in explaining the increase of uncertainty. In contrast, optimism about survival chances increases significantly with age and uncertainty decreases. They speculate that increased optimism about survival is consistent with Carstensen's socio-emotional selectivity theory of aging. Such expectations may also serve as a heuristic in choosing sufficient precautionary resources in the face of an uncertain lifetime.

Axel Boersch-Supan, MEA and NBER

Early Retirement, Mental Health and Social Networks,

Boersch-Supan explores the inter-relationships between early retirement, mental health -- including cognition and subjective well-being -- and the size and composition of social networks among older people. While early retirement enables more leisure and relieves stressful job conditions, it also accelerates cognitive decline. He argues that early retirement has side effects on the retirees' social networks. Social contacts are a side effect of employment that keeps workers mentally agile. Social contacts, especially with friends, decline gradually after retirement, with an acceleration effect when retirement was early. These side effects appear to explain part of the accelerated cognitive aging that occurs after early retirement.

Esther Duflo and Abhijit Banerjee, MIT and NBER, and Sharon Barnhardt, Indian Institute of Management

Nutrition, Iron Deficiency Anemia, and the Demand for Iron Fortified Salt: Evidence from an Experiment in Rural Bihar

Iron Deficiency Anemia is frequent among the poor worldwide. While it can be prevented with the appropriate supplement or food fortification, these programs often do not reach the poorest. Further, little is known about the impact of treating iron deficiency anemia on productivity. Banerjee, Barnhardt, and Duflo investigate the feasibility and the impact of addressing IDA through partly subsidized, double fortified salt (DFS) — salt fortified with iron and iodine — in rural Bihar. Analysis of a baseline survey in 400 villages suggests that anemia is prevalent (over 50 percent of adult women are anemic) and is correlated with lower physical and cognitive fitness at all ages. This is despite the fact that consumption per capita is not particularly low by the standards of rural India (INR 67 per capita and per day), and that average BMI is not very low, indicating that the overall intake of calories must be adequate. This suggest that micro-nutrient deficiency is likely playing a key role. Almost all households purchase salt, which makes DFS a promising channel for distributing supplemental iron. A randomized pricing experiment suggests that subsidizing DFS by about 55 percent led to a fairly large take up, even without detailed information campaign.