Report - IZA Workshop

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"The Well-Being of the Elderly: Income, Consumption, and Health - Cross-Country Perspectives"
(May 22-23, 2006)
On May 22-23 2006, the IZA Research Program on “The Future of Labor” held a workshop in Bonn on the well-being of the elderly. This was the second of two workshops in this area, with the first taking place in Lisbon, Portugal, in May 2005. In this year’s workshop, twelve papers were presented in the general area of non-labor market issues involving older individuals.

The workshop’s first session contained two papers on the care of the elderly. The first, presented by David Bell (University of Stirling), focused on the impacts of incentives to alter the locus and amount of care of the elderly. In 2002 Scotland enacted a program that offered free personal care to all elderly, whether or not the care was provided formally, through institutions or by private providers, or informally. No such program was adopted in the rest of the United Kingdom. The authors examined how the amount and type (co-residential, living together, or non-residential) of care changed by measuring changes in their levels and distribution in Scotland as compared to other parts of the UK. In the British Household Panel they found no evidence that the program had any effect on the amount and type of care. Implicitly the subsidy functioned merely as a transfer to those who provide care to the elderly.

The other paper in this session used data from 10 European countries describing the characteristics of individuals aged 50 and over. Karsten Hank (University of Mannheim) studied the relationship of physical distance between older persons and their adult children and the frequency of contacts between them, focusing especially on cross-country differences. Unsurprisingly, closer proximity was related to more frequent contacts. What was surprising, however, was that the strength of this relationship differed little among countries. In particular, while southern Europeans live closer to their adult children, the impact of an additional kilometer of distance on the extent of contacts between the older person and an adult child was roughly the same as in northern Europe.

The second session dealt with issues in consumption by the elderly. Susann Rohwedder (RAND Corporation) used newly-created data on a long and large panel of older Americans to study how consumption changes with aging. While a substantial literature indicates that wealth rises continually with age, the authors’ use of more appropriate data suggests that in fact it drops beginning with age 80. This occurs concomitantly with an eventual fall in consumption. Together their findings suggest that actual behavior approximates fairly well the standard life-cycle model used by economists.

Ian Walker (University of Warwick) and his co-authors examined the effects of an earmarked lump-sum subsidy (a fixed amount per year aimed at increasing fuel purchases) offered in the UK to all elderly citizens. Using several measures of consumption in two different data sets, they study whether the earmarked subsidy in fact altered the mix of spending in the desired direction – toward relatively greater purchases of fuels. The evidence is clear that no such earmarking is seen in the data – the subsidy is treated like income from any other source. This is evidence against the general economic idea that people think about income using “mental accounts” – pigeonholing income for different purposes.

Konstantinos Tatsiramos (IZA) was concerned with patterns of mobility in housing among older Europeans. Do they downsize housing? Do they move from owner-occupied to rental housing? Using the European Community Household Panel, he finds that there are substantial transitions that become more frequent as people age. These transitions are, however, less frequent in southern Europe than in northern Europe.

In a study of the causal relations between health and economic attainment among the elderly, Sandra Cavaco (University of Paris 2) used data from an internet-based survey in six EU countries. This question is crucial for determining the role of improvements in health in generating greater human wealth. The authors find that, if either government policy or a self-motivated health-improving change in behavior were to generate an improvement in health, it would create an improvement in subsequent economic attainment.

Josef Zweimüller (University of Zurich) also focused on the relation between health and economic outcomes, in this case how unemployment affects subsequent health. To avoid the issue of simultaneous causation, the authors use Austrian data to examine how plant closings, which are unlikely to be determined by health, affect the subsequent health-care costs of workers. They find substantial increases in health-care costs, with the impact coming through additional sick days rather than more frequent visits to physicians.

Maarten Lindeboom (Free University of Amsterdam) focused on the very specific question of the causation between one spouse’s death and the life course of the surviving spouse. As in the Zweimüller study, determining the extent of causation is extremely difficult due to the existence of assortative mating and correlated behavior while both spouses are alive. Using a technique developed for combining information on large numbers of medical outcomes, the study finds that a spouse’s death lowers the survivor’s remaining life expectancy by over 10 percent, with most of the impact felt in the first three years after the spouse dies. Specific negative impacts on several aspects of health, particularly arthritis and diabetes, are also demonstrated.

Arthur van Soest (RAND Corporation) analyzed whether misperceptions of Social Security (government-provided retirement benefits) in the U.S. are related to subsequent changes in consumption and in more subjective measures of well-being. The authors take perceptions of benefits well before retirement and create a measure of the respondents’ over- or under-predictions. They find that people who underestimate their benefits are more likely to reduce consumption upon retirement and more likely to be unhappy about their life situation during retirement. Implicitly those people had counted on receiving more benefits than they were entitled to, and mistakenly planned their retirement spending patterns based on this excess.

Nabanita Datta Gupta (Aarhus School of Business) used a remarkably rich Danish data set to study whether shocks to older citizens’ health lead to retirement. Matching longitudinal data on labor-force status with detailed health information on the causes of hospital admissions, the authors find that the link between labor-force withdrawal and health shocks is weaker than has been inferred in studies of the U.S. This may stem from other researchers’ use of subjective measures of changes in health, but it may also arise from Denmark’s system of universal health care.

The final two papers made comparisons within and across countries on the health status of older citizens. Nuria Mas (IESE Business School, Barcelona) used comparable data from Spain, the U.S., Canada and the U.K. on detailed disease clusters to rank countries in their success in minimizing the incidence and severity of these diseases. In general the U.S. does very well with such acute conditions as heart attack, but it does relatively badly in handling chronic conditions such as diabetes.

Arie Kapteyn (RAND Corporation) used the SHARE data covering older people in ten European countries to examine whether detailed measures of health status differ across these countries and whether the differences can be explained by such characteristics as education, household size, presence of children, etc. The demographic differences hardly alter the conclusion that these objective measures appear somewhat lower in southern European countries, even though longevity there is just as high as in northern Europe.