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AGIR Brussels, March 10 2005

AGIR Brussels, March 10 2005. Hannu Piekkola Influence of the Value of Time on Retirement Decision. OBJECTIVES.

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AGIR Brussels, March 10 2005

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  1. AGIRBrussels, March 10 2005 Hannu Piekkola Influence of the Value of Time on Retirement Decision

  2. OBJECTIVES Ageing, Health, and Retirement in Europe (AGIR):document and analyze the health of the ageing population, facilitate the construction of scenarios of the future health care demand and challenges to the social security and pension systems.AGIR WP3: Determinants of retirement, financial incentives to retire, accounting for leisure and domestic work (project report in www.enepri.org)ETLA:ETLA DP No 868 ”Time Use and Options for Retirement in Europe” DP “Health and Incentives to Retire”

  3. Table 2. countries and survey years of original data DATA • MTUS data • 24 countries, 50 time-use surveys • Harmonized data • Original Data • Austria, (Belgium), Denmark, Finland, Germany, The Netherlands, UK, (Portugal) • Finland 1999/2000 follows new Eurostat standards • one weekend & one weekday • demographic and income variables linked

  4. METHODS • Document time use in household work • Wage rates, social security payments, tax treatment • Estimate health status • Replacement rates • Option values • Three income levels (0.67APW, APW, 1.67APW)

  5. ESTIMATING HEALTH STATUS Finnish data: self-assessment of health unhealth=”notable health problems”, 5%-15% of 45-59-years old. ECHP uses ”very poor -very good” five categories Other countries: Demographic factors and time use used to predict health status

  6. PROBIT MODEL FOR HEALTH STATUS AGE 44-64

  7. TIME USE AND WELFARE REGIMES • Central Europe, which has relatively fewer paid work hours (Germany and Belgium) and average domestic work hours (Germany); • Smaller countries (Finland, the Netherlands and Portugal) and the UK, which have more paid work hours and more domestic work hours for men (except for Portugal) and women; • Exceptions, such as Denmark, which has relatively little domestic work or Belgium which has little domestic work for women contrary to expectations about the continental regime. • Other categories • Nordic regime: smallest difference in domestic work between employed and non-employed • Southern Continental/Liberal: biggest difference in domestic work

  8. Employed Non-employed Employed Non-employed Health Poor Health Health Poor Health Health Poor Health Health Poor health Belgium* 42.88 23.27 41.27 37.63 Denmark 46.46 45.38 24.76 17.99 44.21 51.14 21.09 35.68 Finland 55.34 50.12 26.24 26.79 56.30 59.87 39.04 37.67 Germany 44.17 45.50 35.54 29.32 46.22 36.94 47.01 34.98 Netherlands 54.07 45.31 27.04 26.34 51.41 52.06 36.99 34.15 Portugal* 51.22 14.93 63.47 41.77 United Kingdom 62.13 44.96 32.39 24.23 58.20 50.68 35.46 27.82 Average 50.89 46.26 26.31 24.94 51.58 50.14 37.00 34.06 * No assessment of health available Table 8. Total work by gender, employment status, and health age 50-64 (hours per week) TOTAL WORK = paid + household work Men Women • All Countries • Employed with poor health: 5h less for men, 1h less for women • Non-employed with poor health: 1.5h less for men, 3h less for women • Smaller countries: high burden (UK, Finland, Portugal) • Poor health of employed, men in Netherlands and UK 20h less per week. Poor health of women 4-6h less • Exception Denmark: low burden • Dual burden is higher for employed unhealthy women

  9. TOTAL WORK Table. Paid work and domestic work among the employed according to Eurostat 2003 • Denmark resembles other Nordic countries

  10. Male Female Employed Non-nemployed Employed Non-employed Healthy Unhealthy Healthy Unhealthy Healthy Unhealthy Healthy Unhealthy Austria 1992 11.99 12.35 21.22 20.15 26.50 27.40 34.44 25.65 Belgium 1999 * 14.42 23.45 17.48 37.63 Denmark 1987 2.96 4.45 9.42 10.25 10.31 15.62 Finland 2000 13.63 13.86 23.04 20.65 23.22 23.61 33.46 32.11 Germany 1992 14.20 16.97 26.39 26.49 26.80 29.38 31.25 25.45 Netherlands 1995 11.26 12.02 24.74 18.56 26.83 25.81 35.78 28.37 Portugal 1999 * 6.30 14.93 27.65 41.77 United Kingdom 1999 14.38 21.39 26.69 22.31 20.37 28.24 31.51 21.00 Average 11.14 13.51 21.23 21.63 22.39 24.13 32.68 26.51 * No assessment of health available DOMESTIC WORK Table 8. Domestic work by gender, employment status and health • Women supply 11 hours more domestic work than men • More domestic work in non-employment • Healthy: 10.1 hours more for men and 10.3 more for women • Unhealthy: 8.1 hours more for men and 2.4 more hours for women

  11. Employed Non-employed Healthy Unhealthy Healthy Unhealthy Belgium* 0.60 0.62 Denmark 0.58 0.65 0.47 0.73 Finland 0.63 0.56 0.61 0.58 Germany 0.60 0.49 0.48 0.55 Netherlands 0.69 0.68 0.58 0.57 Portugal* 0.81 0.74 United Kingdom 0.62 0.53 0.54 0.53 0.65 0.58 0.58 0.59 Average * No assesment of health status available FEMALE SHARE OF DOMESTIC WORK Table 7. Female share of domestic work by employment status and health for those aged 50-64 • Among healthy, women do 65% of household work • Among unhealthy, women do 58% of household work

  12. MAIN TIME USE RESULTS • Female shares: • 1/2 of total work • 2/3 of domestic work • Unhealthy and non-employed share total work somewhat more equally • Women, also those with poor health, adjust total work supply by less than men depending on employmenet status • less paid work and more household work than men before non-employment • Unhealthy women have high dual burden • 10 hours more domestic work in non-employment for both sexes: • 5.2 €/h = 2704 €/year • Women in good health exhibit continuity of life time patterns and domestic work supply does not increase substantially after retirement. Women in poor health are instead faced with dual burden of work that can explain the withdrawal from work.

  13. NET REPLACEMENT RATE Net replacement rate (NRR) = net pension + value of domestic work / net earnings + value of domestic work

  14. OPTION VALUE Option value = lifetime utility, retire at particular (optimal) age – lifetime utility, retire today

  15. REPLACEMENT RATES AND RETIREMENT Replacement rates are close to or greater than 100% (Finland, German Women in poor health) when domestic work is accounted for. Inclusion of domestic work in incentive calculations makes retiring more attractive, and the results of the calculations correlate with actual retirement ages in Europe.

  16. OPTION VALUES (in 10,000 euros) AND RETIREMENT Average option values are not lower for individuals in poor health since household work is less sensitive to employment status

  17. Last year of work Denmark Finland Germany Netherlands UK Average Good Poor Good Poor Good Poor Good Poor Good Poor Good Poor health health health health health health health health health health health health 55 78 % 65 % 90 % 89 % 70 % 78 % 89 % 80 % 60 % 50 % 77 % 72 % 56 82 % 65 % 92 % 91 % 76 % 85 % 90 % 80 % 60 % 50 % 80 % 74 % 57 82 % 65 % 94 % 93 % 77 % 86 % 90 % 80 % 61 % 50 % 81 % 75 % 58 82 % 65 % 96 % 95 % 79 % 88 % 90 % 81 % 61 % 51 % 82 % 76 % 59 82 % 65 % 98 % 97 % 81 % 90 % 91 % 81 % 61 % 51 % 83 % 77 % 60 82 % 65 % 100 % 99 % 82 % 92 % 91 % 81 % 62 % 52 % 84 % 78 % 61 82 % 65 % 102 % 101 % 84 % 93 % 91 % 81 % 62 % 52 % 84 % 79 % 62 82 % 65 % 104 % 103 % 86 % 95 % 91 % 82 % 63 % 53 % 85 % 79 % 63 82 % 65 % 112 % 110 % 88 % 97 % 92 % 82 % 63 % 53 % 87 % 81 % 64 82 % 65 % 116 % 113 % 90 % 100 % 92 % 82 % 64 % 54 % 89 % 83 % 65 90 % 73 % 119 % 117 % 92 % 102 % 92 % 82 % 95 % 83 % 98 % 91 % 66 90 % 73 % 123 % 120 % 96 % 106 % 92 % 82 % 96 % 84 % 99 % 93 % 67 90 % 73 % 126 % 124 % 99 % 109 % 92 % 82 % 96 % 84 % 101 % 95 % 68 90 % 73 % 130 % 127 % 103 % 114 % 92 % 82 % 97 % 85 % 102 % 96 % 69 90 % 73 % 133 % 130 % 107 % 118 % 92 % 82 % 97 % 85 % 104 % 98 % 70 91 % 74 % 134 % 131 % 112 % 123 % 92 % 82 % 98 % 86 % 105 % 99 % Average 85 % 68 % 111 % 109 % 89 % 98 % 91 % 82 % 75 % 64 % 90 % 84 % Replacement Rates Extended for Household Work for Men Across Countries

  18. Last year of work Denmark Finland Germany Netherlands UK Average Good Poor Good Poor Good Poor Good Poor Good Poor Good Poor health health health health health health health health health health health health 55 78 % 97 % 100 % 101 % 60 % 91 % 90 % 73 % 62 % 50 % 78 % 83 % 56 78 % 97 % 102 % 103 % 66 % 97 % 90 % 74 % 63 % 51 % 80 % 84 % 57 78 % 97 % 103 % 105 % 67 % 99 % 90 % 74 % 63 % 51 % 80 % 85 % 58 78 % 97 % 104 % 107 % 68 % 100 % 90 % 74 % 63 % 52 % 81 % 86 % 59 78 % 97 % 105 % 109 % 70 % 102 % 90 % 74 % 64 % 52 % 81 % 87 % 60 78 % 97 % 107 % 111 % 71 % 104 % 90 % 74 % 64 % 53 % 82 % 88 % 61 78 % 97 % 108 % 113 % 73 % 106 % 90 % 74 % 95 % 79 % 89 % 94 % 62 78 % 97 % 109 % 115 % 75 % 108 % 90 % 74 % 96 % 79 % 90 % 95 % 63 78 % 97 % 114 % 122 % 76 % 110 % 90 % 74 % 96 % 80 % 91 % 96 % 64 78 % 97 % 116 % 125 % 78 % 112 % 90 % 74 % 96 % 80 % 92 % 98 % 65 86 % 104 % 118 % 128 % 80 % 114 % 90 % 74 % 97 % 81 % 94 % 100 % 66 86 % 104 % 121 % 132 % 83 % 118 % 90 % 74 % 97 % 81 % 95 % 102 % 67 86 % 105 % 123 % 135 % 86 % 122 % 90 % 74 % 97 % 82 % 97 % 103 % 68 86 % 105 % 125 % 138 % 90 % 126 % 90 % 74 % 98 % 82 % 98 % 105 % 69 86 % 105 % 127 % 142 % 94 % 130 % 90 % 74 % 98 % 83 % 99 % 107 % 70 64 % 78 % 128 % 143 % 97 % 135 % 90 % 74 % 98 % 83 % 94 % 102 % Average 80 % 98 % 113 % 121 % 77 % 111 % 90 % 74 % 84 % 70 % 89 % 95 % Replacement Rates Extended for Household Work for Women Across Countries

  19. OPTION VALUES at age 55 (1000 Euro)

  20. OPTION VALUES at age 55 (1000 Euro)

  21. Women in Poor Health • High dual burden while at work and domestic work opportunities may push for retirement. • High domestic work supply of employed and non-employed women in poor health, strikingly so in Denmark, Finland and Netherlands • In poor health relatively high labour supply and replacement rates Women in Good Health • Exhibit continuity of life time patterns: household work does not increase after retirement. • Replacement rate the same and option values higher than for healthy men

  22. Men in Good Health • Increase in household work after retirement large in relative terms (doubles on average). • Gender specialisation: men supply more paid work while women specialise in domestic work already before retirement • Especially for healthy men the increase in domestic work after withdrawal from the labour market is large in relative terms (doubles on average), and the effect of accounting for domestic work on the financial incentive to retire is greater for them.

  23. Differences Between Genders • Justification hypothesis • explain why women report more bad health than men • here poor health rather captures the time use effects of poor labour market status (more objective) • Institutions and labour market characteristics. • part-time work in Netherlands, household work more important (25% of it is gardening) • Health as one consumption bundle, Grossman(1972) • substitute for paid work, complement for unpaid work? • Investment in health capital and time horizons in health capital • Netherlands and UK with poorer health services?

  24. Spouses Economic incentives may work poorly unless the time use allocation decisions are properly taken into account. • Men’s retirement decisions are most sensitive to the labour market decisions of their spouses • Time allocation indeed becomes more similar in non-employment between genders • Unpaid work and the possibilities for combining working and domestic life are very important in retirement decisions. Domestic work increases radically in non-employment.

  25. RETIREMENT AND WELFARE REGIMES • Central Europe (Germany), Finland and Portugal have high replacement rate and flat option value curves after the pensionable age. • 2. Belgium and the Netherlands are similar but with greater incentives for retirement after reaching pensionable age. • 3. Denmark and UK have most incentive compatible systems, since replacement rates are low and option value is rising after the pensionable age.

  26. RETIREMENT AND WELFARE REGIMES • Central Europe with relatively short paid work hours (Germany, Belgium) and average domestic work hours (Germany) • do not have similar difficulties for combining work and domestic life. • but older German women still have strikingly low labour supply • 2. Small countries (Finland, Netherlands, Portugal) and UK have long paid work hours and long domestic work hours for men (except for Portugal) and long domestic work hours for women. • well being at work and successful combining of working and domestic life important • Health has a strong effect on labour supply, • 3. Domestic work supply is low in Denmark - otherwise similar to other countries in the Nordic regime (also in Eurostat 2003) - and in Belgium • Combining working and domestic life is easier and domestic work interfere less with retirement incentives. • The pension system in Belgium is, however, fairly generous

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