Can We Afford to Grow Older?: A Perspective on the Economics of Aging

356 Pages·1996·1.45 MB·English

by  Richard Disney

Can We Afford to
Grow Older?

Can We Afford to
Grow Older?
A Perspective on the
Economics ofAging
Richard Disney
TheMITPress
Cambridge,Massachusetts
London,England
ª 1996MassachusettsInstituteofTechnology
Allrightsreserved.Nopartofthisbookmaybereproducedinanyformbyanyelec-
tronicormechanicalmeans(includingphotocopying,recording,orinformationstorage
andretrieval)withoutpermissioninwritingfromthepublisher.
SetinPalatinobyGraphicComposition,Inc.
PrintedandboundintheUnitedStatesofAmerica.
LibraryofCongressCataloging-in-PublicationData
Disney,Richard.
Canweaffordtogrowolder?:aperspectiveontheeconomicsofaging/Richard
Disney.
p. cm.
Includesbibliographicalreferencesandindex.
ISBN0-262-04157-X
1.Aging—Economic aspects. 2.Aged—Economic conditions 3.Age distribution
(Demography) 4.Oldagepensions. I.Title.
HQ1061.D56 1996
305.26—dc20 96-542
CIP
toJamie,Larissa,andWilliam—thenextgeneration

Contents
Preface ix
1 Overview 1
2 ABurden of Dependency? Social Security Programs and
Intergenerational Redistribution 17
3 Overlapping-Generations Models, Feasible Pension Schemes,
and Aging Populations 35
4 Social Security: Paying for Past Pension Promises 59
5 Private Pension Plans in the Demographic Transition 107
6 Productivity, Wages, and Educational Attainment: The Impact
of Workforce Aging 153
7 Retirement: The Labor Supply of Older Workers in an Aging
Society 193
8 Consumption and Saving: Life-Cycle Behavior and Population
Aging 227
9 Financing Health Care 267
10 APublic-Choice Perspective 283
11 Some Salient Conclusions 307
viii Contents
Notes 311
Bibliography 323
Index 339
Preface
This book emerged at the suggestion of Terry Vaughn, of The MIT
Press, who heard me present a paper with this title at the European
Economic Association. Had we both realized the time that it would
take to finishthe book, in mycase punctuated both byother research
projectsandbyincrementstothesizeofmyfamily,wemighthavehad
secondthoughts.
In writing the book, I came to realize that there was a good deal
more literature in mainstream economics which addressed the topic
of the book than I had at first realized. Even so, I am conscious that
severaltopicsaredealtwithmorecursorilythanIwouldhavewished
and that other topics (notably those dealing with the “economics of
population,” such as endogenous fertility and family formation) are
entirely ignored. The subject matter of this book therefore concerns
the economic consequences of the dramatic present and prospective
demographic shifts in Western industrialized (OECD) countries, not
theircauses.
MyinitialinterestinthetopicstemsinlargepartfromJohnCreedy;
my intellectual debt to him is substantial as it is, more indirectly, to
Peter Hart. Much of my recent research in the field has been with
EdwardWhitehouse;hiscontributiontothisbookissubstantial.Other
co-researchers,whoseeffortsappeardirectlyorindirectlyinthisbook,
and to whom I am indebted, include James Banks, Richard Blundell,
AgarBrugiavini,AndrewDilnot,TimGallagher,AndrewHenley,Paul
Johnson,CostasMeghir,GaryStears,andStevenWebb.Otherintellec-
tualinfluencesonthecontentwillbeapparentfromthebibliography.
Past and present colleagues in the University of Kent’s Department
ofEconomicsandattheInstituteforFiscalStudieshavereaddraftsof
parts of the book or endured my pronouncements on its contents; I
singleoutAmandaGosling,AndrewHenley,andJohnVanReenenfor
x Preface
particular awards.Emma Robinson isthanked for processingsome of
thefigures.ThreereviewersforTheMITPressmadeextremelyhelpful
suggestions.IthankPaulBethgeforhissplendidcomprehensiveedito-
rialassistance,andTheMITPressforafineall-roundjob.
My debt to my family is substantial: to my parents and to Marjorie
and Gwen. Erika Szyszczak put up with the book intruding into our
domestic life, and put me to shame by writing several books in the
time it took to me to finish this one. In dedicating this book to our
children, the standard disclaimer that it would have been finished a
lot sooner in their absence is appropriate. But life would have been
alotlessfun.