Published Papers

Why do couples and singles save during retirement? Household heterogeneity and its aggregate implications

with Mariacristina De Nardi,  John Jones and Rory McGee 

Journal of Political Economy (Forthcomoing)

ABSTRACT: We estimate a model of savings for retired couples and singles who face longevity and medical expense risks, and in which couples can leave bequests both when the first and last spouse dies. We show that saving motives vary by marital status, permanent income, and age. We find that most households save more for medical expenses than for bequests, but that richer households and couples, who hold most of the wealth, save more for bequests. As a result, bequest motives are a key determinant of aggregate retirement wealth. 

The effect of disability insurance receipt on mortality

with Bernard Black, Jeremy McCauley and Jae Song 

Journal of Public Economics (2024)

ABSTRACT: This paper estimates the effect of Disability Insurance and Supplemental Security Income receipt on mortality for individuals on the margin of being allowed versus denied benefits. Exploiting the random assignment of administrative law judges to disability insurance cases, we find that benefit allowance increases 10-year mortality rates by 2.8 percentage points for marginal beneficiaries. However, using a Marginal Treatment Effects approach, we find evidence that benefit receipt reduces mortality for inframarginal beneficiaries, who are typically less healthy than marginal beneficiaries. Furthermore, we find suggestive evidence that allowance reduces mortality among those with expensive health conditions such as cancer.

Why do retired households draw down their wealth so slowly?

with John Jones and Rory McGee

Journal of Economic Perspectives (2023)

ABSTRACT: Retired households, especially those with high lifetime income, decumulate their wealth very slowly, and many die leaving large estates. The three leading explanations for the "retirement savings puzzle" are the desire to insure against uncertain lifespans and medical expenses, the desire to leave bequests to one's heirs, and the desire to remain in one's own home. We discuss the empirical strategies used to differentiate these motivations, most of which go beyond wealth to exploit additional features of the data. The literature suggests that all the motivations are present, but has yet to reach a consensus about their relative importance. 

Growing old in China in socioeconomic and epidemiological context: systematic review of social care policy for older people

with Sophia Lobanov-Rostovsky and others

BMC Public Health (2023)

ABSTRACT: 

Background From 2020 to 2050, China’s population aged ≥65 years old is estimated to more than double from 172 million (12·0%) to 366 million (26·0%). Some 10 million have Alzheimer’s disease and related dementias, to approach 40 million by 2050. Critically, the population is ageing fast while China is still a middle-income country.

Methods Using official and population-level statistics, we summarise China’s demographic and epidemiological trends relevant to ageing and health from 1970 to present, before examining key determinants of China’s improving population health in a socioecological framework. We then explore how China is responding to the care needs of its older population by carrying out a systematic review to answer the question: ‘what are the key policy challenges to China achieving an equitable nationwide long-term care system for older people?’. Databases were screened for records published between 1st June 2020 and 1st June 2022 in Mandarin Chinese or English, reflecting our focus on evidence published since introduction of China’s second long-term care insurance pilot phase in 2020.

Results Rapid economic development and improved access to education has led to widescale internal migration. Changing fertility policies and household structures also pose considerable challenges to the traditional family care model. To deal with increasing need, China has piloted 49 alternative long-term care insurance systems. Our findings from 42 studies (n = 16 in Mandarin) highlight significant challenges in the provision of quality and quantity of care which suits the preference of users, varying eligibility for long-term care insurance and an inequitable distribution of cost burden. Key recommendations include increasing salaries to attract and retain staff, introduction of mandatory financial contributions from employees and a unified standard of disability with regular assessment. Strengthening support for family caregivers and improving smart old age care capacity can also support preferences to age at home.

Conclusions China has yet to establish a sustainable funding mechanism, standardised eligibility criteria and a high-quality service delivery system. Its long-term care insurance pilot studies provide useful lessons for other middle-income countries facing similar challenges in terms of meeting the long-term care needs of their rapidly growing older populations.

Downward dementia trend goes into reverse in England and Wales? English Longitudinal Study of Ageing 2002 to 2019

with Yuntao Chen and others

Journal of Epidemiology and Community Health (2023)

ABSTRACT: 

Background Recent evidence suggests dementia incidence rates are declining in high-income countries. However, data for the trend after 2010 are scarce. We examined the temporal trend in England and Wales from 2002–2019, considering bias and non-linearity.

Methods We used population-based panel data linked to the mortality register across wave 1 (2002–2003) to wave 9 (2018–2019) of the English Longitudinal Study of Ageing, representing initially non-institutionalised adults ≥50 years old. Uniform standard criteria based on cognitive and functional impairment were used to ascertain incident dementia cases. Crude incidence rates were determined in seven overlapping initially dementia-free sub-cohorts followed over four years. We examined the temporal trend of dementia incidence according to age, sex and education attainment. We estimated the age- and sex-adjusted trend of dementia incidence with Cox and multi-state models. Restricted cubic splines allowed for potential non-linearity.

Results 19 806 people were included in the study. Crude dementia incidence declined from 2002 to 2008 (8.7 to 7.4 per 1000 person-years). The rate increased from 2008 to 2019 (7.4 to 10.3 per 1000 person-years). Adjusting for age and sex, and accounting for missing dementia cases due to death, estimated dementia incidence declined by 28.8% from 2002 to 2008 (incidence rate ratio 0.71, 95% CI 0.58–0.88), and increased by 25.2% from 2008 to 2016 (incidence rate ratio 1.25, CI 1.03–1.54). The higher education group had a sharper decline of dementia incidence from 2002 to 2008, and a smaller increase after 2008.

Conclusion Dementia incidence may not be declining. There was a rebound after 2008 in England and Wales. If the upward dementia incidence trend continues, along with population ageing, the burden on health and social care may be large. The burden may be considerably larger than estimated on the basis of a linearly declining dementia incidence trend.

Dementia incidence trend in England and Wales, 2002-19, and projection for dementia burden to 2040: analysis of data from the English Longitudinal Study of Ageing

with Yuntao Chen and others

The Lancet Public Health (2023)

ABSTRACT: 

Background Dementia incidence declined in many high-income countries in the 2000s, but evidence on the post-2010 trend is scarce. We aimed to analyse the temporal trend in England and Wales between 2002 and 2019, considering bias and non-linearity.

Methods Population-based panel data representing adults aged 50 years and older from the English Longitudinal Study of Ageing were linked to the mortality register across wave 1 (2002–03) to wave 9 (2018–19) (90 073 person observations). Standard criteria based on cognitive and functional impairment were used to ascertain incident dementia. Crude incidence rates were determined in seven overlapping initially dementia-free subcohorts each followed up for 4 years (ie, 2002–06, 2004–08, 2006–10, 2008–12, 2010–14, 2012–16, and 2014–18). We examined the temporal trend of dementia incidence according to age, sex, and educational attainment. We estimated the trend of dementia incidence adjusted by age and sex with Cox proportional hazards and multistate models. Restricted cubic splines allowed for potential non-linearity in the time trend. A Markov model was used to project future dementia burden considering the estimated incidence trend.

Findings Incidence rate standardised by age and sex declined from 2002 to 2010 (from 10·7 to 8·6 per 1000 person-years), then increased from 2010 to 2019 (from 8·6 to 11·3 per 1000 person-years). Adjusting for age and sex, and accounting for missing dementia cases due to death, estimated dementia incidence declined by 28·8% from 2002 to 2008 (incidence rate ratio 0·71, 95% CI 0·58–0·88), and increased by 25·2% from 2008 to 2016 (1·25, 1·03–1·54). The group with lower educational attainment had a smaller decline in dementia incidence from 2002 to 2008 and a greater increase after 2008. If the upward incidence trend continued, there would be 1·7 million (1·62–1·75) dementia cases in England and Wales by 2040, 70% more than previously forecast.

Interpretation Dementia incidence might no longer be declining in England and Wales. If the upward trend since 2008 continues, along with population ageing, the burden on health and social care will be large.

Funding UK Economic and Social Research Council.


Long-term care in England

with James Banks and Jeremy McCauley

National Bureau of Economic Research (2023)

ABSTRACT: This paper describes the state of Long-Term Care (LTC) in England, which is facing increasing strain due to population aging. We piece together microeconomic and aggregate data in order to give an overview of the demand and supply of LTC in England in a way that facilitates comparisons with other countries, and briefly discuss current LTC policy and recent reforms.

The impact of health on labor supply near retirement

with Richard Blundell, Jack Britton and Monica Costas Dias 

Journal of Human Resources (2023)

ABSTRACT: Estimates of how health affects employment vary considerably. We assess how different methods and health measures impact estimates of the impact of health on employment using a unified framework for the US and England. We find that subjective and objective health measures, and subjective measures instrumented by objective measures produce similar estimates when using sufficiently rich objective measures. Moreover, a single health index can capture the relevant health variation for employment. Health deterioration explains up to 15% of the decline in employment between ages 50 and 70. Effects are larger for the US than England, and for the low educated.

How should we fund end-of-life care in the US

with Karolos Arapakis, John Jones and Jeremy McCauley

The Lancet Regional Health-Americas (2022)

ABSTRACT: Dying is expensive in America. Healthcare expenditures from all payors (public and private) total $80,000 in the last 12 months of life and $155,000 in the last 3 years. Although most end-of-life expenses are paid by insurers such as Medicare and Medicaid, the amount households pay out-of-pocket is hardly trivial. Furthermore, some conditions, such as dementia, are not well insured, leaving families with potentially enormous liabilities. In this viewpoint, we discuss the current funding of end-of-life care in the US. We argue that long-term care (LTC) expenses are underinsured relative to other types of late-in-life care, such as hospital spending and doctor visits. We then discuss potential reforms that would better insure families against catastrophic expenses related to LTC. 

What will the cardiovascular disease slowdown cost? Modelling the impact of CVD trends on dementia, disability, and economic costs in England and Wales from 2020-2029

with Brendan Collins and others

Plos one (2022)

ABSTRACT: 

Background There is uncertainty around the health impact and economic costs of the recent slowing of the historical decline in cardiovascular disease (CVD) incidence and the future impact on dementia and disability.

Methods Previously validated IMPACT Better Ageing Markov model for England and Wales, integrating English Longitudinal Study of Ageing (ELSA) data for 17,906 ELSA participants followed from 1998 to 2012, linked to NHS Hospital Episode Statistics. Counterfactual design comparing two scenarios: Scenario 1. CVD Plateau—age-specific CVD incidence remains at 2011 levels, thus continuing recent trends. Scenario 2. CVD Fall—age-specific CVD incidence goes on declining, following longer-term trends. The main outcome measures were age-related healthcare costs, social care costs, opportunity costs of informal care, and quality adjusted life years (valued at £60,000 per QALY).

Findings The total 10 year cumulative incremental net monetary cost associated with a persistent plateauing of CVD would be approximately £54 billion (95% uncertainty interval £14.3-£96.2 billion), made up of some £13 billion (£8.8-£16.7 billion) healthcare costs, £1.5 billion (-£0.9-£4.0 billion) social care costs, £8 billion (£3.4-£12.8 billion) informal care and £32 billion (£0.3-£67.6 billion) value of lost QALYs.

Interpretation After previous, dramatic falls, CVD incidence has recently plateaued. That slowdown could substantially increase health and social care costs over the next ten years. Healthcare costs are likely to increase more than social care costs in absolute terms, but social care costs will increase more in relative terms. Given the links between COVID-19 and cardiovascular health, effective cardiovascular prevention policies need to be revitalised urgently.

End of Life Medical Expenses

with John Jones, Elaine Kelly and Jeremy McCauley 

Handbook of Aging and the Social Sciences (2021)

ABSTRACT: In this review, we document end-of-life medical spending: its level, composition, funding and contribution to aggregate medical spending, both for the US and abroad. We discuss how end-of-life expenses affects household savings and other financial behaviour such as insurance choices. Lastly, we review economic evidence on the efficacy of medical spending at the end of life, assessing the value of palliative and other care for both longevity and patient satisfaction.

Dementia and disadvantage in the USA and England: population-based comparative study

with Karolos Arapakis, Eric Brunner and Jeremy McCauley

BMJ Open (2021)

ABSTRACT: 

Objectives To compare dementia prevalence and how it varies by socioeconomic status (SES) across the USA and England.

Design Population-based comparative study.

Setting Non-Hispanic whites aged over 70 population in the USA and England.

Participants Data from the Health and Retirement Study and the English Longitudinal Study of Ageing, which are harmonised, nationally representative panel studies. The sample includes 5330 and 3147 individuals in the USA and England, respectively.

Main outcome measures Between country differences in age-gender standardised dementia prevalence, across the SES gradient. Dementia prevalence was estimated in each country using an algorithm based on an identical battery of demographic, cognitive and functional measures.

Results Dementia prevalence is higher among the disadvantaged in both countries, with the USA being more unequal according to four measures of SES. Overall prevalence was lower in England at 9.7% (95% CI 8.9% to 10.6%) than the USA at 11.2% (95% CI 10.6% to 11.8%), a difference of 1.4 percentage points (pp) (p=0.0055). Most of the between country difference is driven by the bottom of the SES distribution. In the lowest income decile individuals in the USA had 7.3 pp (p<0.0001) higher prevalence than in England. Once past health factors and education were controlled for, most of the within country inequalities disappeared; however, the cross-country difference in prevalence for those in lowest income decile remained disproportionately high.

Conclusions There is inequality in dementia prevalence according to income, wealth and education in both the USA and England. England has lower dementia prevalence and a less steep SES gradient. Most of the cross-country difference is concentrated in the lowest SES group, which provides evidence that disadvantage in the USA is a disproportionately high risk factor for dementia.

Medical Spending, Bequests, and Asset Dynamics around the Time of Death

with John Jones, Mariacristina De Nardi, Rory McGee and Rachel Rodgers 

Economic Quarterly (2020)

Health and employment amongst older workers

with Jack Britton 

Fiscal Studies (2020)

ABSTRACT: Health and employment are strongly correlated. This paper reviews the existing evidence and brings in new evidence on the following issues: (a) the measurement of health; (b) the impact of health on employment rather than just the association between health and employment; (c) the mechanisms by which health impacts employment; and (d) the likely effect of recent retirement and disability policy changes in the UK. Although the magnitude of the estimated effect of health on employment varies greatly from study to study, some of this variation is driven by the health measure used. Given our preferred measure, the evidence suggests that 5–10 per cent of the employment decline between ages 50 and 70 is due to declining health in England, with the largest effects among low‐educated men. Most of the effect comes through declining preferences for work and lower productivity when in bad health, although some of the effect is from government‐provided incentives to not work when in bad health, such as from disability benefits.

Social Security Research at the University of Michigan Retirement and Disability Research Center

with John Laitner, Alan L. Gustman, Michael D. Hurd, Olivia S. Mitchell, Kathleen J. Mullen, and Susan C. Barnes 

Social Security Bulletin (2020)

ABSTRACT: In 1998, the Social Security Administration established the Retirement Research Consortium to encourage research on topics related to Social Security and the well-being of older Americans, and to foster communication between the academic and policy communities. The Michigan Retirement Research Center (MRRC) participated in the Consortium from its inception until 2019, when the MRRC expanded and became the Michigan Retirement and Disability Research Center. This article surveys a selection of the MRRC's output over its second 10 years (2008–2017), summarizes its innovative use of new data sources, and highlights several key themes in the center's research contributions.

Association between the arrested decline in cardiovascular disease and health and social-care costs: a modelling study

with Brendan Collins and others 

The Lancet (2019)

ABSTRACT: Dementia and cardiovascular disease generate enormous health and social-care costs and have shared risk factors. Following decades of cardiovascular disease mortality declines in England, improvements slowed after 2011. We investigated the potential economic implications of this slowdown. We predict social-care costs will grow twice as fast as health-care costs over the next decade, even if cardiovascular disease occurrence continues to decline. Understanding the scale of the future health and social-care funding challenge might support proactive policy making. This study represents the first time ELSA data have been linked with HES data. However, we did not assess changes in health and social-care efficiency over time or the effect of spending on improving health.

Will social care need more resources? A modelling study of health and social costs in England and Wales for alternative future cardiovascular disease scenarios

with Brendan Collins and others 

Journal of Epidemiology and Community Health (2019)

ABSTRACT: Cardiovascular disease (CVD) contributes to dementia and disability risk. It also affects the cost of care. The English NHS long-term plan targets preventing 150,000 CVD events from 2019–2029. However, after decades of declines in CVD mortality in England, CVD mortality improvements have slowed since 2011, which may indicate a slowdown in incidence reduction from around 2006. Therefore, there is uncertainty about how CVD burden and associated health and social care costs might evolve in the next decade.This study projects future health and social care costs resulting from the recent slowdown in CVD incidence and mortality declines. We predict that social care costs will grow twice as fast as healthcare costs over the next decade, regardless of future improvements. Total funding policy therefore need to needs to be urgently addressed, which may prove politically challenging.

Industry Dynamics and Minimum Wage: A Putty-Clay Approach

with Daniel Aaronson, Isaac Sorkin and Ted To 

International Economic Review (2018)

ABSTRACT: We document three new facts about the industry-level response to minimum wage hikes. First, restaurant exit and entry both rise following a hike.  Second, entry is concentrated in chains, which we show to be more capital-intensive. Third, there is no change in employment among continuing restaurants. We develop a model of industry dynamics based on putty-clay technology and show that it is consistent with these facts. In the model, continuing restaurants cannot change employment, and thus industry-level adjustment occurs through exit of labor-intensive restaurants and entry of capital-intensive ones. We show these three facts are inconsistent with other models of industry dynamics. 

The Lifetime Medical Spending of Retirees

with John Jones, Mariacristina De Nardi, Rory McGee and Justin Kirschner

Economic Quarterly  (Fall, 2018) 

ABSTRACT: Using dynamic models of health, mortality, and out-of-pocket medical spending (both inclusive and net of Medicaid payments), we estimate the distribution of lifetime medical spending that retired U.S. households face over the remainder of their lives. We find that at age 70, households will on average incur $122,000 in medical spending, including Medicaid payments, over their remaining lives. At the top tail, 5 percent of households will incur more than $300,000, and 1 percent of households will incur over $600,000 in medical spending inclusive of Medicaid. The level and the dispersion of this spending diminish only slowly with age. Although permanent income, initial health, and initial marital status have large effects on this spending, much of the dispersion in lifetime spending is due to events realized later in life. Medicaid covers the majority of the lifetime costs of the poorest households and significantly reduces their risk.

Who receives Medicaid in Old Age? Rules and Reality

with Margherita Borella and Mariacristina De Nardi

Fiscal Studies (2017)

ABSTRACT: Medicaid is a government program that provides health insurance to the old who are sick and have little assets and income compared to their medical needs. Thus, it explicitly tests for income, assets, and health or medical needs to determine eligibility. We ask how these rules map into the reality of Medicaid recipiency and what observable characteristics are important to determine who ends up on Medicaid. The data show that both singles and couples with high retirement income can end up on Medicaid at very advanced ages. We find that, conditioning for a large number of observable characteristics, including those that directly relate to Medicaid eligibility criteria, single women are more likely to end up on Medicaid. So are non-whites, but, surprisingly, their higher recipiency is concentrated above the lower income percentiles. We also find that low-income people with a high school diploma or higher are much less likely to end up on Medicaid than their more educated counterparts. All of these effects are large and depend on retirement income in a very non-linear way. 

The Accuracy of Economic Measurement in the Health and Retirement Study

with John Jones and Jeremy McCauley

Forum for Health Economics and Policy (2017)

ABSTRACT: We assess the quality of the HRS's measures of out-of-pocket medical spending and health insurance premia, both in the "core interviews'' and in the "exit interview'' data. We provide detailed evidence on the quality of the HRS insurance premia data, and we compare the HRS exit data to exit data in the MCBS. We document how changes in survey questions, including the introduction of "unfolding brackets'', affect the HRS measures.  We document what we believe are errors in the HRS imputations and  provide some suggestions for improving the accuracy of some imputed variables. Overall, we find the HRS data to be of high quality. However, we believe that many interesting variables in the HRS are under-utilized because users must perform imputations themselves.

Health, Health Insurance, and Retirement: A Survey

with John Jones

Annual review of Economics (2017)

ABSTRACT: The degree to which retirement decisions are driven by health is a key concern for both academics and policymakers. In this paper we survey the economic literature on the health-retirement link in developed countries. We describe the mechanisms through which health affects labor supply and discuss how they interact with public pensions and public health insurance. The historical evidence suggests that health is not the primary source of variation in retirement across countries and over time. Furthermore, declining health with age can only explain a small share of the decline in employment near retirement age. Health considerations nonetheless play an important role, especially in explaining cross-sectional variation in employment and other outcomes within countries. We review the mechanisms through which health affects retirement and discuss recent empirical analyses. 

Data from the US and Eight Other Developed Countries Show that End-of-Life Medical Spending is Lower than Previously Reported 

with Jeremy McCauley and Elaine Kelly and others

Health Affairs (2017)

ABSTRACT: Although end-of-life medical spending is often viewed as a major component of aggregate medical expenditure, accurate measures of this type of medical spending are scarce. We used detailed health care data for the period 2009–11 from Denmark, England, France, Germany, Japan, the Netherlands, Taiwan, the United States, and the Canadian province of Quebec to measure the composition and magnitude of medical spending in the three years before death. In all nine countries, medical spending at the end of life was high relative to spending at other ages. Spending during the last twelve months of life made up a modest share of aggregate spending, ranging from 8.5 percent in the United States to 11.2 percent in Taiwan, but spending in the last three calendar years of life reached 24.5 percent in Taiwan. This suggests that high aggregate medical spending is due not to last-ditch efforts to save lives but to spending on people with chronic conditions, which are associated with shorter life expectancies.

The Effect of Health Insurance on Near-Elderly Health and Mortality

with Bernard Black, José-Antonio Espín-Sánchez and Kate Litvak

American Journal of Health Economics (2017)

ABSTRACT: We use the best available longitudinal dataset, the Health and Retirement Study, and a battery of causal inference methods to provide both central estimates and bounds on the effect of health insurance on health and mortality among the near elderly (initial age 50-61) over an 18-year period.  Compared to matched insured persons, those uninsured in 1992 consume fewer healthcare services, but, do not have worse health outcomes and, in our central estimates, do not die significantly faster than their insured counterparts. Our bounds suggest that prior studies overestimated the health and mortality benefits of health insurance for the uninsured.

Retirement Incentives and Labour Supply

with Richard Blundell and Gemma Tetlow

Handbook of the Economics of Population Aging (2016)

ABSTRACT: In this chapter, we review the evidence on retirement and study the role of incentives in the retirement decision. The key patterns of withdrawal from the labor market are presented and some of the factors that might explain the large and discrete drops in hours of work at the point of `retirement' are presented. We study the main retirement incentives that individuals face and place these financial and other incentives in the context of a structural approach to modeling retirement. We use this approach to frame issues of how government and private pension schemes affect retirement behavior.  Noting that the typical household nearing retirement today in most developed economies is one in which both husband and wife work, we examine the theory and evidence on modeling incentives in couples and for joint decision-making. We conclude with a discussion of some of the gaps in our understanding of the employment of the elderly and raise some central questions that should be addressed by future research.

Medicaid Insurance in Old Age

with Mariacristina De Nardi and John Jones

American Economic Review (2016)

ABSTRACT: The old age provisions of the Medicaid program were designed to insure retirees against medical expenses. We estimate a structural model of savings and medical spending and use it to compute the distribution of lifetime Medicaid transfers and Medicaid valuations across currently single retirees. Compensating variation calculations indicate that current retirees value Medicaid insurance at more than its actuarial cost, but that most would value an expansion of the current Medicaid program at less than its cost. These findings suggest that for current single retirees, the Medicaid program may be of the approximately right size.

Savings After Retirement: A Survey 

with Mariacristina De Nardi and John Jones

Annual Review of Economics (2016), Chicago Fed Letter No. 356

ABSTRACT: The saving patterns of retired U.S. households pose a challenge to the basic life cycle model of saving. The observed patterns of out-of-pocket medical expenses, which rise quickly with age and income during retirement, and heterogeneous lifespan risk can explain a significant portion of U.S. savings during retirement. However, more work is needed to disentangle these precautionary saving motives from other motives, such as the desire to leave bequests. Progress in disentangling these motivations has been made by matching other features of the data, such as public and private insurance choices. Better understanding whether intended bequests left to children and spouses are due to altruism, risk sharing, exchange motivations, or a combination of these factors, is an important direction for future research.

Medical Spending around the World: Summary of Results 

with Elaine Kelly

Fical Studies (2016)

MAIN FINDINGS/POLICY POINTS: Our analysis includes high-quality administrative data from Denmark, England, France, Germany, Japan, the Netherlands, Quebec, Taiwan and the US, using standardised methods across countries. There is a (mostly) negative correlation between income and medical spending within all countries, the exceptions being both Japan and Taiwan for those aged 65 and over, and the US and Taiwan for those under 25. The concentration of medical spending varies substantially across countries. Medical spending is highly persistent in all countries. Medical spending in the year of death accounts for approximately 5–10 per cent of aggregate medical spending for the whole population, except in Taiwan where for hospital spending the share is 16 per cent. It accounts for 9–20 per cent (with the exception of Taiwan at 29 per cent) of medical spending among those aged 65 and over. Perhaps surprisingly, health care spending is less concentrated in the US than in most countries, and is less concentrated at the end of life than in most countries.

Medical Spending on the U.S. Elderly 

with Mariacristina De Nardi, John Jones and Jeremy McCauley

Fical Studies (2016)

ABSTRACT: We use data from the Medicare Current Beneficiary Survey (MCBS) to document the medical spending of Americans aged 65 and older. We find that medical expenses more than double between ages 70 and 90 and that they are very concentrated: the top 10% of all spenders are responsible for 52% of medical spending in a given year. In addition, those currently experiencing either very low or very high medical expenses are likely to .find themselves in the same position in the future. We also find that the poor consume more medical goods and services than the rich and have a much larger share of their expenses covered by the government. Overall, the government pays for 65% of the elderly's medical expenses. Despite this, the expenses that remain after government transfers are even more concentrated among a small group of  people. Thus, government health insurance, while potentially very valuable, is far from complete. Finally, while medical expenses before death can be large, on average they constitute only a small fraction of total spending, both in the aggregate and over the life cycle. Hence, medical expenses before death do not appear to be an important driver of the high and increasing medical spending found in the U.S.

Retirement Wealth on both Sides of the Pond 

with Richard Blundell, Rowena Crawford and Gemma Tetlow

Fical Studies (2016)

ABSTRACT: We use comparable data from the US and England to examine similarities and differences in the level and trajectories of assets among households aged 70 and over. We find that in the US assets on average decline gradually with age, while in England older households actually accumulate wealth. These differences appear to be driven largely, though not entirely, by housing wealth: over the period we consider house price growth drove increases in housing wealth in England that more than offset the slow draw down of non-housing wealth. This suggests the illiquid nature of housing is likely to be an important factor in explaining wealth drawdown at older ages. We also consider the potential importance of bequest motives and savings to insure against risk of medical & long-term care expenses.

The Effect of Disability Insurance Receipt on Labor Supply 

with Jae Song

American Economic Journal: Policy (2014)

ABSTRACT: This paper estimates the effect of Disability Insurance receipt on labor supply. Exploiting the effectively random assignment of judges to disability insurance cases, we use instrumental variables to address the fact that those allowed benefits are a selected sample.  We find that benefit receipt reduces labor force participation by 26 percentage points three years after a disability determination decision, although the reduction is smaller for those over age 55, college graduates, and those with mental illness. OLS estimates are similar to instrumental variables estimates. We also find that over 60% of those denied benefits by an Administrative Law Judge are subsequently allowed benefits within 10 years, showing that most applicants apply, re-apply, and appeal until they get benefits.

How does a Federal Minimum Wage Hike Affect Aggregate Household Spending? 

with Daniel Aaronson

Chicago Fed Letter No.313  (August, 2013) 

Expected Income Growth and the Great Recession

with Taylor Kelley and An Qi

Chicago Fed Economic Perspectives Vol. 37  (1st Quarter, 2013) 

The Spending and Debt Response to Minimum Wage Hikes 

with Daniel Aaronson and Sumit Agarwal

American Economic Review (2012)

ABSTRACT: Immediately following a minimum wage hike, household income rises on average by about $250 per quarter and spending by roughly $700 per quarter for households with minimum wage workers.  Most of the spending response is caused by a small number of households who purchase vehicles. Furthermore, we find that the high spending levels are financed through increases in collateralized debt. Our results are consistent with a model where households can borrow against durables and face costs of adjusting their durables stock.

Public Pensions and Labor Supply over the Life Cycle 

with John Jones

International Tax and Public Finance (2012)

ABSTRACT: In order to remain fiscally solvent, governments of many countries have reformed their public pension schemes to encourage labor supply at older ages.  These reforms include reductions in the generosity of public pensions and reduced penalties for working past the normal retirement age. In this paper, we consider how reforms to public pension systems affect labor supply over the life cycle. We put the recent empirical evidence on the effect of government pensions on labor supply in a life cycle context, and we present evidence on the effectiveness of tax reforms for stimulating labor supply over the life cycle.  Our main conclusion is that the labor supply of older workers is responsive to changes in retirement incentives. The labor supply of younger workers is less responsive.  Thus the trend towards lower taxes on older workers in many developed countries is likely to continue to fuel the recent trend towards later retirement.

Review of "The Minimum Wage and Labour Market Outcomes" 

(by Chris Flinn)

Economic Journal (2012)

ABSTRACT: Should the minimum wage be raised? In ‘The Minimum Wage and Labor Market Outcomes’, Christopher Flinn attempts to answer this question. He uses a search and matching model to show that the answer involves more than knowledge of whether the minimum wage cuts employment. The answer also depends on (i) how much the minimum wage boosts the pay of those who don’t lose their jobs, (ii) how the minimum wage impacts the future employment and earnings prospects of those who are without jobs and (iii) how we weight the winners and losers following a minimum wage hike.

Medicaid and the Elderly

with Mariacristina De Nardi, Angshuman Gooptu and John Jones

Chicago Fed Economic Perspectives Vol. 36  (1st Quarter, 2012) 

Consumption and the Great Recession

with David Benson and Mariacristina De Nardi

Chicago Fed Economic Perspectives Vol. 36  (1st Quarter, 2012) 

How do the Risks of Living Long and Facing High Medical Expenses Affect the Elderly's Saving Behaviour?

with Mariacristina De Nardi and John Jones

Chicago Fed Letter No.294  (January, 2012) 

The Effects of Health Insurance and Self-Insurance on Retirement Behaviour 

with John Jones

Econometrica (2011)

ABSTRACT: This paper provides an empirical analysis of the effects of employer-provided health insurance, Medicare, and Social Security on retirement behavior. Using data from the Health and Retirement Study, we estimate a dynamic programming model of retirement that accounts for both saving and uncertain medical expenses. Our results suggest that Medicare is important for understanding retirement behavior, and that uncertainty and saving are both important for understanding the labor supply responses to Medicare.  Half the value placed by a typical worker on his employer-provided health insurance is the value of reduced medical expense risk. Raising the Medicare eligibility age from 65 to 67 leads individuals to work an additional 0.074 years over ages 60-69. In comparison, eliminating two years worth of Social Security benefits increases years of work by 0.076 years.

Identification of Models of the Labor Market 

with Chris Taber

Handbook of Labour Economics (2011)

ABSTRACT: This chapter discusses identification of common selection models of the labor market.  We start with the classic Roy model and show how it can be identified with exclusion restrictions. We then extend the argument to the generalized Roy model, treatment effect models, duration models, search models, and dynamic discrete choice models. In all cases, key ingredients for identification are exclusion restrictions and support conditions.

How do Sudden Large Losses in Wealth Affect Labor Force Participation? 

with David Benson

Chicago Fed Letter No.282  (January, 2011) 

Comments on “Innovative Institutions and Products for Retirement Provision in Europe" 

(by Lans Bovenberg and Theo Nijman)

Ageing, Health, and Pensions in Europe: an Economic and Social Policy Perspective (2010)

Why do the Elderly Save? The Role of Medical Expenses 

with Mariacristina De Nardi and John Jones

Journal of Political Economy (2010)

ABSTRACT: This paper constructs a model of saving for retired single people that includes heterogeneity in medical expenses and life expectancies, and bequest motives. We estimate the model using Assets and Health Dynamics of the Oldest Old data and the method of simulated moments.  Out-of-pocket medical expenses rise quickly with age and permanent income. The risk of living long and requiring expensive medical care is a key driver of saving for many higher-income elderly. Social insurance programs such as Medicaid rationalize the low asset holdings of the poorest but also benefit the rich by insuring them against high medical expenses at the ends of their lives.

Life Expectancy and Old Age Savings 

with Mariacristina De Nardi and John Jones

American Economic Review, Papers and Proceedings (2009)

ABSTRACT: Rich people, women, and healthy people live longer. We document that this heterogeneity in life expectancy is large, and we use an estimated structural model to assess its effect on the elderly’s saving. We find that the differences in life expectancy related to observable factors such as income, gender, and health have large effects on savings, and that these factors contribute by similar amounts. We also show that the risk of outliving one’s expected lifespan has a large effect on the elderly’s saving behavior.

The Effect of Progressive Taxation on Labor Supply when Hours and Wages are Jointly Determined  

with Daniel Aaronson

Journal of Human Resources (2009)

ABSTRACT: This paper extends a standard intertemporal labor supply model to account for progressive taxation as well as the joint determination of hourly wages and hours worked.  We show that these two factors can have implications for both estimating labor supply elasticities as well as for using these elasticities in tax analysis. Failure to account for wage-hours ties and progressive taxation may cause the hours response to marginal tax rate changes to be understated by 5 to 30 percent for men.

The Minimum Wage, Restaurant Prices, and Labor Market Structure

with Daniel Aaronson and James MacDonald

Journal of Human Resources (2008)

ABSTRACT: Using store-level and aggregated Consumer Price Index data, we show that restaurant prices rise in response to minimum wage increases under several sources of identifying variation. We introduce a general model of employment determination that implies minimum wage hikes cause prices to rise in competitive labor markets but potentially fall in monopsonistic environments. Furthermore, the model implies employment and prices are always negatively related. Therefore, our empirical results provide evidence against the importance of monopsony power for understanding small observed employment responses to minimum wage changes. Our estimated price responses challenge other explanations of the small employment response too.

Product Market Evidence on the Employment Effects of the Minimum Wage

with Daniel Aaronson

Journal of Labour Economics (2007)

ABSTRACT: We infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry. Whereas perfect competition implies employment falls and prices rise after a minimum wage increase, the monopsony model potentially implies the opposite. We show that estimated price responses are consistent with the competitive model. We place fairly tight bounds on the employment response, with the most plausible parameter values suggesting a 10 percent increase in the minimum wage lowers low skill employment by 2 to 4 percent and total restaurant employment by 1 to 3 percent.

Asset Rundown after Retirement: The Importance of Rate of Return Shocks 

with Olesya Baker and Phil Doctor

Chicago Fed Economic Perspectives Vol. 31  (2nd Quarter, 2007) 

Labor Force and Wage Dynamics Among Low Skilled Workers

with Bhashkar Mazumder and Chris Taber 

Working and Poor: How Economic and Policy Changes Are Affecting Low-Wage Workers (2006)

ABSTRACT: In this chapter, we focus on the key components that determine an individual's early career wage growth and how these factors have changed for less skilled workers over the last twenty years. In particular, we examine the relative importance of accumulating work experience as compared to the quality of job matches in influencing wage growth over this time period. Our main finding that is that wage growth has varied considerably over the last 20 years. We find that the vast majority of the variation in wage growth is due to variability in the return to experience over time.7 Although the return to experience seems to change from year to year, there is no strong evidence of a secular trend. On average over this time period, an additional year of experience increases wages about 4 percent but this gain varies from as much as 6 percent to as little as 2 percent. In contrast, essentially none of the changing pattern of wage growth can be attributed to changes in experience accumulation, job to job finding rates, or layoff rates. While these variables have the expected cyclical relationships, the overall magnitude of their contributions to changes in wage growth is extremely small.

Right before the End: Asset Decumulation at the End of Life

with Olesya Baker, Mariacristina De Nardi, John Jones

Chicago Fed Economic Perspectives Vol. 30  (1st Quarter, 2006) 

The Effects of Health, Wealth, and Wages on Labor Supply and Retirement Behaviour

Review of Economic Studies (2005)

ABSTRACT: This paper estimates a life cycle model of labor supply, retirement and savings behavior in which future health status and wages are uncertain. Individuals face a fixed cost of work and cannot borrow against future labor, pension, or Social Security income. The method of simulated moments is used to match the life cycle profiles of labor force participation, hours worked, and assets that are estimated from the data to those that are generated by the model. The model establishes that the tax structure of the Social Security system and pensions are the key determinants of the high observed job exit rates at ages 62 and 65. Removing the tax wedge embedded in the Social Security earnings test for individuals aged 65 and older would delay job exit by almost one year. By contrast, Social Security benefit levels, health, and borrowing constraints are less important determinants of job exit at older ages. For example, reducing Social Security benefits by 20% would cause workers to delay exit from the labor force by only three months.

On the Distribution and Dynamics of Health Costs

with John Jones

Journal of Applied Econometrics (2004)

ABSTRACT: Using data from the Health and Retirement Survey and the Assets and Health Dynamics of the Oldest Old survey, we estimate the stochastic process that determines both the distribution and dynamics of health care costs. We find that the data generating process for log health costs is well represented as the sum of a white noise process and a highly persistent AR(1) process. We also find that the innovations to this process can be modeled with a normal distribution that has been adjusted to capture the risk of catastrophic health care costs. Simulating this model, we find that in any given year 0.1% of households receive a health cost shock with a present value of at least $125,000.

You can't take it with you: Asset Rundown at the end of the life cycle

with Kate Anderson and Tina Lam

Chicago Fed Economic Perspectives Vol. 28  (3rd Quarter, 2004) 

The Labor Supply Response to (Mismeasured but) Predictable Wage Changes

Review of Economics and Statistics (2004)

ABSTRACT: Most panel data studies of intertemporal labor supply assume classical measurement error. Recent validation studies refute this assumption. In this study I address non- classical measurement error explicitly. I use data on males from the Panel Study of Income Dynamics Validation Study to purge measurement error from the Panel Study of Income Dynamics. I find a large amount of predictable wage variation in the data, even after accounting for measurement error. However, there is almost no labor supply response to these predictable wage changes. Therefore, failure to control for non-classical measurement error cannot explain the low estimated labor supply elasticities in other.

The Effect of Part-Time Work on Wages: Evidence from the Social Security Rules

Journal of Labour Economics (2004)

ABSTRACT: This paper identifes the part-time wage effect using hours variation caused by the Social Security rules. We show that work hours and wages drop sharply at ages 62 and 65. We argue that the hours decline causes the wage decline, resulting in a 25 percent wage penalty for men who cut their workweek from 40 to 20 hours. However, we .find little evidence for such an e.ffect among women. We also show that models that fail to account for the joint determination of hours and wages will understate the labor supply response to a tax change by about 26 percent.

Analyzing the relationship between health insurance, health costs and health care utilization

with Kirti Kamboj

Chicago Fed Economic Perspectives Vol. 26  (3rd Quarter, 2002) 

Is there still an Investment Overhang, and if so, should we sorry about it?

with Thomas H. Klier and David Oppedahl 

Chicago Fed Letter No.177a  (May, 2002) 

The effect of the run-up in the stock market on labor supply

with Ing-Haw Cheng

Chicago Fed Economic Perspectives Vol. 24  (4th Quarter, 2002) 

Part-time Work and Hourly Wages

with Daniel Aaronson 

Chicago Fed Letter No.156  (August, 2000)