Permanent and transitory wages of British men, 1975–2001: year,age and cohort effects

We examine the mean and variance–covariance structure of log-wages over calendar time and the life cycle of British men, hereby controlling for birth cohort effects. We attribute the strong increase in mean log-wage during the 1980s and 1990s to a rise in mean log-wage with the year of birth. This rise is diminishing with the year of birth, which implies lower wage inequality between cohorts with the year of birth. Wage inequality has increased during the 1980s and early 1990s and remained fairly stable in the second half of the 1990s. The year effects, however, show increasing wage inequality up to 2001, mainly due to a strong rise in transitory wage inequality. Transitory wages are strongly correlated over time and an increase in transitory wage inequality therefore has highly persistent inequality consequences. The stable wage inequality in the second half of the 1990s is attributed to lower within-cohort wage inequality for the younger cohorts. The age effects show that permanent wage inequality increases with age, in particular up to age 30 and over age 50. Copyright © 2007 John Wiley & Sons, Ltd.     

Saving Accounts versus Stocks and Bonds in Household Portfolio Allocation

We study the structure of household portfolios of financial wealth by analyzing both the determinants of total financial wealth and the choice between risky (stocks and bonds) and riskfree assets (saving accounts). The econometric specification is a generalized trivariate Tobit model, estimated on a cross section of 3,077 households in the Netherlands in 1988. We account for endogeneity of financial wealth and for selectivity due to nonreporting. Results show that the level of financial wealth and the marginal tax rate are major determinants of the allocation between riskfree and risky assets.     

Explaining The <Emphasis Type="Italic">Hump</Emphasis> In Life Cycle Consumption profiles

Summary  This paper documents life cycle (or age) profiles of (log) household income, durable and non-durable consumption for Dutch households after explicitly controlling for time (or business cycle) effects and birth cohort effects. We find that both measures of consumption as well as income is clearly hump shaped over the life cycle. Hence, real consumption per household seems to track income over the life cycle. This empirical regularity is hard to reconcile with basic specifications of the life cycle model. We further document life cycle profiles of demographic and labor supply variables. We argue that part, but not all, of the hump in consumption may be explained by household composition variables. Durable consumption per adult equivalent stays approximately flat until age 60 after which it drops dramatically. This phenomenon may be partly explained by a decrease in work related durable expenditures after retirement. Non-durable consumption per equivalent adult increases steadily until age 55 and stays approximately flat after that.      

Retirement Choices in Italy: What an Option Value Model Tells Us*

Using Italian data, we estimate an option value model to quantify the effect of financial incentives on retirement choices. As far as we know, this is the first empirical study to estimate the conditional multiple‐years model put forward by Stock and Wise (1990) . This implies that we account for dynamic self‐selection bias. We also present an extended version of this model in which the marginal value of leisure is random. For the female sample, the model is able to predict almost perfectly the age‐specific hazard rates. For the male sample, we obtain a good fit. Dynamic self‐selection results in a downward bias in the estimate of the marginal utility of leisure. We perform a simulation study to gauge the effects of a dramatic pension reform. Underestimation of the value of leisure translates into sizeable over‐prediction of the impact of reform. Due to lack of data, results for males should be interpreted with caution since we are not able to fully correct for dynamic self‐selection bias.     

Subjective Well-Being Around Retirement

This paper studies the effect of both retirement and unemployment on life satisfaction, using subjective satisfaction indicators from the German Socio-Economic Panel. Moreover, we analyze how accurate individuals anticipate changes in satisfaction around retirement, as well as the correlation between the forecast error in life satisfaction and the labor market status. Being unemployed has a significant negative effect on life satisfaction; (in)voluntary retirement on the other hand has no significant effect on life satisfaction. A new finding is that unemployed individuals underestimate future life satisfaction. That is, their current labor market status has temporary negative effects on well-being, but, after 5 years, individuals are happier with their life than previously anticipated. We find no effects of (in)voluntary retirement on the forecast error.     

INCOME AND WEALTH OVER THE LIFE CYCLE EVIDENCE FROM PANEL DATA

In this paper we examine household wealth and income in the Netherlands using data from the Socio Economic Panel (SEP) in the period 1987–89. We provide an evaluation of the quality of the data and some simple statistics which describe the behavior of wealth, saving, and income over the life cycle. We find there is substantial heterogeneity in the behavior of households, and wealth holdings vary substantially even among the same age group. By exploiting the panel feature of the SEP, we derive saving from first differencing wealth. We find that a sizeable fraction of households do not dissave when old and we find some evidence in favor of the bequest motive.     

Mandatory Pensions and Personal Savings in The Netherlands*

The Netherlands has a relatively generous social security system and a wide coverage of individuals by private (occupational) pension schemes. Total household savings are rather high and fairly stable, although the amount of contractual savings apears to be going up at the expense of non-contractual (free) savings. Using an approach originally pioneered by Feldstein (1974) we employ microdata to investigate the displacement effect of security and pension wealth on free household savings. It turns out that the data available are too noisy to make precise statements about the displacement effects. Our results do suggest, however, that a one-for-one displacement of free savings by social security is consistent with the data. For pensions such a complete offset is less likely. This suggests that increase of coverage by private pensions is an effective way of raising savings.     

The Effects of Financial Education on Financial Literacy and Savings Behavior: Evidence from a Controlled Field Experiment in Dutch Primary Schools

This article reports the results of a controlled field experiment designed to estimate the short‐term effects of a 45‐minute financial education program on the financial literacy and savings behavior of children in Dutch primary schools. Among fifth and sixth graders, the program led to a pre‐ to posttest improvement in financial literacy on almost one of eight questions, with about one‐third of the increase in correctness attributable to the program. It also raised the probability of willingness to save by 4 percentage points. Nonetheless, whereas the program appears effective in respect to questions that explicitly address program content, its significant effects on financial literacy seem primarily driven by the results for girls, although we cannot reject homogeneous treatment effects with respect to gender.     

Saving and habit formation: evidence from Dutch panel data

This paper focuses on the role of habit formation in individual preferences. In this study, the model of Alessie and Lusardi (Econ Lett 55:103–108, 1997) and its extension by Guariglia and Rossi (Oxf Econ Pap 54:1–19, 2002) are considered. Our empirical specifications are based on their closed-form solutions, where current saving is expressed as a function of lagged saving and other regressors. In our study, we use a longitudinal data set from the Netherlands that allows us to disentangle the role of habit formation from unobserved heterogeneity. Contrary to most other studies using survey data, we find evidence in favor of habit formation. However, the magnitude of the habit formation coefficient is rather small. Income uncertainty seems to affect saving behavior of Dutch households.