Apr 1, 2016 - Mar 31, 2018
Macroeconomics of Health, and Mandatory Retirement in Japan
In this proposal, we plan to explore two potential projects. The first project is the continuation from the last year while the second is a new initiation.
1) Human capital accumulation, Mandatory retirement, and Inequality.
One salient feature of the Japanese labor market is that a large fraction of people works in firms offering lifetime employment with a mandatory retirement age, normally between 60 and 65, while the other non-trivial fraction works under short-term contracts or as self-employment. Based on our previous findings, we argue that this dual labor market structure can contribute to the rapid increase in earning inequality after 50.
The red line plots the cross sectional variance of log of earning, which is a measure of earning inequality. The lines with dots and crosses are the cross sectional variance of log earning among people with lifetime employment contracts and people with short-term contracts or with self-employment respectively. The earning inequality
(red line) grows faster after age 50. This faster increase is explained by the observation that more people move from jobs with lifetime contracts to jobs with short-term contracts or self-employment. One of the goal of this project is to explain this transition among people after 50, which can be linked to the mandatory retirement age and potentially have an important implication for the Employee Public Pension reform.
2) Retirement and Social Security Claim.
In this project we are interested in why most individuals claim Social Security benefits before the full retirement age? In the US, early claiming (before the full retirement age, 65) results in a permanent reduction in the basic retirement benefits, while late claiming results in its permanent increase. These penalties and rewards can be substantial. For the cohort of individuals born in 1937, claiming at age 62 (3 years earlier) resulted in 20% reduction in monthly benefits, while claiming at age 70 (5 years later) resulted in 30% increase. Yet, among men born in 1936-1938, 67% claim benefits earlier than the full retirement age. Importantly, choosing the age of claiming benefits is equivalent to the purchase of private annuities. In this light, this early claim behavior is linked to a well-documented annuity puzzle, specifically there is a lack of demand in the private annuity market.