Workshop on Ageing and Health

An NBER's workshop on "Ageing and Health" sponsored by Max Planck Institute for Social Law and Social Policy took place on June 7-8 in Germany. Research Associate Axel H. Börsch-Supan of Max Planck Institute for Social Law and Social Policy; Fabrizio Mazzonna of Universit√† della Svizzera Italiana; and Program Director Jonathan S. Skinner of Dartmouth College organized the meeting. These researchers' papers were presented and discussed:

Amitabh Chandra, Harvard University and NBER, and Douglas O. Staiger, Dartmouth College and NBER

Identifying Prejudice in Healthcare by Race, Gender, and Age

Axel H. Börsch-Supan; Tabea Bucher-Koenen, Max Planck Institute; and Felizia Hanemann, Technical University of Munich (TUM)

Does Disability Insurance Improve Health and Well-being?

The purpose of disability insurance (DI) is to protect people with health problems that limit their ability to work. Börsch-Supan, Bucher-Koenen, and Hanemann evaluate the effectiveness of DI benefit programs in delivering this protection by following people's health and financial well-being after the takeup of DI benefits. Börsch-Supan, Bucher-Koenen, and Hanemann take advantage of internationally harmonized panel data and the differences across DI programs in Europe and the United States, as well as their changes over time. They use several econometric approaches to account for the potential endogeneity of DI enrollment and sample selectivity. The researchers find that self-reported health stabilizes after DI benefit receipt. Mental health improves more for DI benefit recipients than non-recipients relative to the beginning of DI benefit receipt. This effect is stronger in countries with more generous DI systems. The effects on objective health measures are positive but largely insignificant.

Coen W.A. van de Kraats, Vrije Universiteit Amsterdam and Tinbergen Institute; Titus J. Galama, University of Southern California; and Maarten Lindeboom, Vrije Universiteit Amsterdam

Light at the End of the Tunnel -
Unemployment and Mental Health after Age 50

Recent literature reports a U-shape in mental health over the life-cycle, with mental health dipping during prime working ages. However, what is behind the U-shape remains a mystery. Van de Kraats, Galama, and Lindeboom find that across countries (U.S., U.K. and continental Europe) the U-shape is present for unemployed and disabled men, but not for employed and retired men, who have stable mental health scores. The researchers hypothesize that the social norm (expectation) of work has a detrimental causal effect on the mental health of those not able to abide by it (e.g., the unemployed and disabled) and that this effect should disappear with retirement as it becomes more accepted for individuals not to work. Using SHARE data on individuals aged 50+ from 11 European countries, the researchers regress the mental health of the unemployed and disabled on the age-, country-, and wave-dependent retirement fraction (the proxy for the social norm of work) and find statistically and economically significant effects. This suggests that the U-shape in mental health is the result of changes in the social norm (expectation) of work, which primarily affect the unemployed and disabled.

Liran Einav, Stanford University and NBER; Amy Finkelstein, MIT and NBER; Sendhil Mullainathan, Harvard University and NBER; and Ziad Obermeyer, Harvard Medical School

Does High Healthcare Spending at End of Life Imply Waste?
Predictive Modeling Suggests Not Necessarily

Mary K. Hamman and John M. Nunley, University of Wisconsin-LaCrosse; Daniela E. Hochfellner, New York University; and Christopher J. Ruhm, University of Virginia and NBER

Peer Effects and Retirement Decisions:
Evidence from Pension Reform in Germany

Although there is an extensive literature studying the effects of individual incentives on retirement decisions, research on the influence of workplace peers is scant. It is important to determine whether individuals respond to own pension incentives and the behavior of their peers, as peer effects may enhance or detract from the intended effects of policy. Hamman, Hochfellner, Nunley, and Ruhm examine peer effects in the context of retirement using a custom extract from the German administrative pension system data for all individuals working in medium and large private establishments. They exploit changes in pensionable ages to identify the effects of peer retirements on individual retirement timing.

Naoki Aizawa, University of Wisconsin-Madison; Soojin Kim, Purdue University; and Serena Rhee, University of Hawaii, Manoa

Labor Market Screening and Social Insurance Program Design
for the Disabled

Aizawa, Kim, and Rhee study how to optimally design subsidies for disabled workers, accounting for both the worker- and firm-side responses in the labor market. The researchers first provide empirical evidence that firms design job amenities, such as the option to reduce work hours, to screen disabled workers. Then, they develop an equilibrium labor market model where firms post a screening contract which consists of wage and job amenities, and workers with different levels of disability make labor supply decisions. In equilibrium, the firms' screening incentives depend on the job search efforts of disabled workers. The researchers estimate the model using the Health and Retirement Study data, and identify the key model parameters by exploiting the exogenous policy variation on employment (hiring) subsidies for the disabled. Using the estimated model, the researchers explore the optimal mix of the disability insurance and employment subsidies for the disabled and study their implications on equilibrium labor market outcomes for workers of different health statuses.

Andreas Haller and Josef Zweimueller, University of Zurich, and Stefan Staubli, University of Calgary and NBER

Tightening Disability Screening Or Reducing Disability Benefits?
Evidence and Welfare Implications

Haller, Staubli, and Zweimueller provide a simple framework to evaluate the welfare effects of stricter disability insurance (DI) screening versus lower DI benefits. They develop sufficient-statistics formulas, capturing the insurance value and incentive costs of changes in screening stringency and benefit levels, and implement them for Austria and the United States. In Austria, the researchers exploit exogenous variation in screening stringency and benefit levels arising from several reforms. They find that stricter screening significantly reduces DI inflow through both a mechanical effect, capturing that fewer applicants qualify for benefits under the stricter rules, and a behavioral effect, capturing that less people apply for benefits. The researchers also find that a decrease in benefits is associated with a significant reduction in DI inflow. The analysis suggests that DI screening among older workers in Austria has been too lenient, but benefit levels are optimal. For the United States, the researchers use existing estimates from previous studies and find that both relaxing screening and increasing benefits would improve welfare, but the welfare gains from relaxing screening are greater.

Peter Hudomiet and Susann Rohwedder, RAND Corporation, and Michael D. Hurd, RAND Corporation and NBER

Using Subjective Conditional Probabilities to Find the Causal Effects of Health, Income, Wealth, and Longevity on Retirement

Gopi Shah Goda, Stanford University and NBER; Matthew Levy, London School of Economics; Colleen Flaherty Manchester and Aaron Sojourner, University of Minnesota; and Joshua Tasoff, Claremont Graduate University

Mechanisms behind Retirement Saving Behavior:
Evidence from Administrative and Survey Data

Defaults have been shown to have a powerful effect on retirement saving behavior yet there is little research that aims to identify the mechanism. Using administrative data on employersponsored retirement accounts linked to survey data, Goda, Levy, Manchester, Sojourner, and Tasoff estimate the relationship between present bias, financial literacy, and exponential-growth bias with retirement saving choices. They find an important role for present bias in explaining why people fail to make active saving choices, maximize employer contributions and take advantage of tax-preferred saving opportunities. The results also suggest a role for limited financial literacy and exponential-growth bias in explaining opt-in saving behavior and highlight the fact that mechanisms may differ depending on choice architecture. The results remain robust after controlling for measurement error using an instrumental variables technique. The findings suggest that mitigating present bias can have large implications for retirement saving outcomes.

Nicholas W. Papageorge, Johns Hopkins University and NBER; Kevin Thom, New York University; and Daniel Barth, University of Southern California

Genetic Endowments and Wealth Inequality (NBER Working Paper No. 24642)

Papageorge, Thom, and Barth show that genetic endowments linked to educational attainment strongly and robustly predict wealth at retirement. The estimated relationship is not fully explained by flexibly controlling for education and labor income. The researchers therefore investigate a host of additional mechanisms that could help to explain the gene-wealth gradient, including inheritances, mortality, savings, risk preferences, portfolio decisions, beliefs about the probabilities of macroeconomic events, and planning horizons. The associations reported provide preliminary evidence that genetic endowments related to human capital accumulation are associated with wealth not only through educational attainment and labor income, but also through a facility with complex financial decision-making. The study illustrates how economic research seeking to understand sources of inequality can benefit from recent advances in behavioral genetics linking specific observed genetic endowments to economic outcomes.

Maarten Lindeboom, Vrije Universiteit Amsterdam

Pension Reform: Disentangling Retirement and Savings Responses

In January 2006, the Dutch government implemented a pension reform that substantially reduced the pension wealth of workers born in 1950 or later. At the same time, a tax-facilitated savings plan was introduced that substantially reduced the saving costs of all workers, irrespective of birth year. Lindeboom uses linked administrative and survey data to assess the effect of the reform on the savings and retirement expectations and realizations of two virtually identical male cohorts that differ only in treatment status, the treated having been born in 1950 and the controls having been born in 1949. Lindeboom shows that retirement expectations are in line with realizations and that the reform had the intended effect on the labor supply for the larger part of the workers, namely, those without sufficient means to substantially increase private savings to counter the effect of the reform. These workers, who are generally in worse health, thus have low substitution rates between private and public wealth. On the other hand, there is a group of mostly high-wage workers who participate in the tax-facilitated Life Course Savings Scheme and are therefore able to fully cushion the impact of the reform by private wealth. There is thus considerable heterogeneity in the substitution rates between public and private wealth. A further, unintended side effect of the introduction of the tax-facilitated savings plan is the decision of high wage earners who are not affected by the drop in pension wealth to retire sooner than initially planned.

Ethan Lieber, University of Notre Dame, and Lee Lockwood, University of Virginia and NBER

Targeting with In-kind Transfers: Evidence from Medicaid Home Care (NBER Working Paper No. 24267)

In-kind transfers are less valuable to recipients than cost-equivalent cash transfers but may improve targeting. Lieber and Lockwood develop a framework for evaluating this tradeoff and apply it to home care. Exploiting randomized experiments by Medicaid, the researchers find that in-kind provision significantly reduces the value of benefits to recipients while targeting a small fraction of the eligible population that is sicker and has fewer informal caregivers than the average eligible. Under a wide range of assumptions within a standard model, the targeting benefit exceeds the distortion cost. This highlights an important cost of recent reforms toward cash-like benefits.

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