ECONOMIC DETERMINANTS OF WORKERS’ RETIREMENT DECISIONS

The landscape for older workers has changed dramatically in recent decades. Governments have made cuts to public pension programs, private pensions have shifted from defined benefit to defined contribution plans, equity and housing markets have been unusually volatile, and workers have experienced declining morbidity and mortality. At the same time, the labor force participation rate for older men and women has been rising over the past two decades, implying later retirement. Are these phenomena related? This paper reviews the large and growing body of literature exploring the economic determinants of workers’ retirement decisions, including public and private pensions, wealth and savings, health and health insurance, and labor demand.     

A THEORETICAL AND PRACTICAL PERSPECTIVE ON THE EQUITY RISK PREMIUM*

Abstract In historical perspective, equity returns have been higher than interest rates but have also varied a good deal more. However, the average excess return has been larger than what could be expected based on classical equilibrium theory: the equity risk premium (ERP) puzzle. This paper has two objectives. First, the paper presents a comprehensive overview of the vast literature developed aimed at adjusting theory and testing the robustness of the puzzle. Here we will show that the failure of theory to link asset prices to economics is mostly quantitative by nature and not qualitative (anymore). Second, beyond providing a survey of theory, we aim for a relevant practical angle as well. Our main contribution is that we spend time on why returns have been higher than investors reasonably could have expected. We present evidence that forecasts of equity returns can be enhanced by valuation models: low valuation levels (low price‐to‐earnings ratios) portend high subsequent returns. While conventional wisdom (several years ago) was to use historical returns to forecast future returns, a growing consensus now recognizes that the predictive power of valuation ratios is preferred. Finally we provide some practical implications based on this predictability. While the ERP is essentially a long‐term issue, the likelihood of a lower risk premium increases risk for many and means that short‐term volatility might not be neglected.     

Social Security and the Retirement and Savings Behavior of Low Income Households

In this paper, we develop and estimate a model of retirement and savings incorporating limited borrowing, stochastic wage offers, health status and survival, social security benefits, Medicare and employer-provided health insurance coverage, and intentional bequests. The model is estimated on a sample of relatively poor households from the first three waves of the Health and Retirement Study (HRS), for whom we would expect social security income to be of particular importance. The estimated model is used to simulate the responses to changes in social security rules, including changes in benefit levels, in the payroll tax, in the social security earnings tax and in early and normal retirement ages. Welfare and budget consequences are estimated.     

RISE OF THE FIDUCIARY STATE: A SURVEY OF SOVEREIGN WEALTH FUND RESEARCH

We survey the literature documenting the rise of sovereign wealth funds (SWFs), which, with assets under management of over $5.4 trillion at year‐end 2014, are a major force in global finance. Research papers have analyzed the evolution of SWFs from stabilization funds to stand‐alone wealth management funds; we both survey this research and show that more than 25 countries have launched or proposed new SWFs since January 2008. The most salient and controversial feature of SWFs is that they are state‐owned; we survey the existing literature on state ownership and discuss what this predicts about the efficiency and beneficence of government control of SWF assets. We discuss the documented importance of SWF funding sources (oil sales revenues versus excess reserves from export earnings) and survey the normative literature describing how SWFs should allocate funds. We then summarize the empirical literature studying how SWFs actually do allocate funds—across asset classes, geographically, and across industries. We document that most SWF equity investments in publicly traded firms involve cross‐border purchases of sizeable minority stakes (median around 20%) in target firms, with a strong preference for investments in the financial sector. Next, we assess empirical studies examining the impact of SWF stock investments on target firm financial and operating performance, and find universal support for a positive announcement period stock price increase of 1–3%. This, however, is significantly lower than the 5% abnormal return documented for stock purchases by comparable privately owned financial investors in recent studies, indicating a “sovereign wealth fund discount.” We conclude by summarizing the lessons of SWF research and pointing out unresolved issues.     

Non-Mortgage Factors Affecting Housing Sales and Construction: A Case Study of Transactions in 3 Counties of Southeastern Wisconsin, 1974-78

A bstract . The surge in the sale and construction of housing in three counties of southeastern Wisconsin between 1974 and 1978 could not be readily explained in terms of the credit cost and credit availability theory, the expectation theory or affordability. A questionnaire was sent to a random sample of home buyers. Their responses showed that the main motivating factors were investment purpose, the desire for a bigger and better home, and anticipation of higher home prices. Data supported their responses as the rate of return on investment in housing (equity appreciation) was significantly higher than both the mortgage interest rate and the return on alternative investments. Although median family income lagged behind home prices , it kept pace with ownership costs. Thus, given the demand, the critical factor was affordability.     

The slowdown in the timing of housing purchases in Japan in the 1990s

Housing prices are high in Japan, resulting in high mortgage payments. Since monthly mortgage payments cannot exceed 25% of current income, households tend to accumulate downpayments in the range of 30–45% of house value. This not only defers their entry into homeownership, but also has significant influence on the type of house eventually purchased. The objective of this study is to understand the changing access to ownership during the 1990s, with emphasis on wealth positions based on savings out of income, private transfers and bequests, and support from parents or other relatives. The source of data is the Ministry of Infrastructure, Land and Transportation survey on household home finance conducted from 1992 to 2000. The methodology employed is duration analysis, with special emphasis on the treatment of liquid asset covariates.     

Dynamic asset allocation when bequests are luxury goods

Luxury bequests impart systematic effects of age to an investor's optimal allocation: the expected percentage allocation to equities rises throughout retirement. When bequests are luxuries the marginal utility of bequests declines more slowly than the marginal utility of consumption. This is essentially lower risk aversion. As a retiree approaches death, her expected remaining lifetime utility is increasingly composed of bequest utility, and thus generates progressively lower risk aversion. A retiree responds by increasingly favoring the higher-return risky asset. Compared to standard preferences, luxury bequests elevate a retiree's average exposure to the risky asset, but the difference is small in early retirement.     

Coastal Urban Planning in The ‘Green Republic’: Tourism Development and the Nature–Infrastructure Paradox in Costa Rica

This article examines coastal urban planning in Costa Rica vis‐à‐vis the country's values in the areas of sustainable tourism and community development, focusing on the city of Jacó. I argue that an anti‐urban tourism development strategy, swift coastal urban development and weak planning have nurtured a nature–infrastructure paradox: when people are brought closer to nature without proper urban and governmental infrastructure, this causes social and environmental damage. To assess this paradox and understand local perceptions of development, I analyzed lengthy semi‐structured interviews and survey responses in San José and Jacó in this study. Research methods also encompassed analysis of current tourism planning institutions and regulations, tourism media coverage and reports, real estate data, participant observation of planning and community meetings and activities, and observations of the built and natural environmental conditions in Jacó and its surroundings. The findings show jurisdictional fragmentation, regulatory weaknesses, complexity, poor coordination, slow action, and incoherent planning and development, leading to environmental degradation and socio‐spatial inequities. A more balanced approach to planning and development would seek to improve environmental health and socio‐spatial equity in tandem, by nurturing and advancing both nature and infrastructure development. Lessons from Jacó have global resonance, given the expansion of the worldwide tourism and second‐home/retirement‐housing industries, their recent concentration in urban coastal destinations of developing countries, and the fragility of these socio‐ecological systems.     

A micro view on home equity withdrawal and its determinants: Evidence from Dutch households

For most households, home ownership is the largest wealth component that has become more accessible through innovation and deregulation in mortgage markets. This paper studies the factors driving home equity withdrawal (HEW) at the household level using Dutch survey data. In the Netherlands, house prices were growing fast and mortgage expenses are to a large extent tax deductible. Expectations and perceptions do seem to play an important role in HEW. Withdrawers tend to be more positive about house price developments and – although having lower income – less concerned about their future economic situation. HEW can have a significant impact on both households and the economy, with most of the equity released being reinvested in the housing sector and only a small share used to finance consumption expenditure.     

Housing equity,residential mobility and commuting

Highly productive economies require a flexible labor force with workers that move in accordance with the changing demand for goods and services. In times with falling housing prices, the mobility of home owning workers may be hampered by a lock-in effect of low or even negative housing equity. This paper explores the effect of housing equity on both the residential mobility and the commuting pattern of homeowners. We merge administrative registers for the Danish population and properties and get highly reliable micro data for our analysis. We find that low and negative housing equity substantially reduces residential mobility among homeowners. The negative effect of locked-in low equity families on labor market mobility may be mitigated by commuting. However, our results show that family heads in low or negative equity homes are not found to commute more than households with higher housing equity, but also that a considerable fraction of home owning family heads commute. The analysis of the joint decision of homeowners to commute or move shows that the option of moving, as an alternative to not moving and not commuting, is chosen by five to six percent of homeowners with low housing equity, while the option of not moving but commuting is chosen by 60%.     

Adaptation investments and homeownership

This article develops a model where ownership improves the efficiency of the housing market as it enhances the utility of housing consumption for some consumers. The model is based on an extended Hotelling–Lancaster utility approach in which the ideal variant of housing is obtainable only by adapting the home through a supplementary investment. Ownership offers low costs of adaptation, but has high contract costs compared with renting. Consumers simultaneously choose housing demand and tenure, and because of the different cost structure only consumers with strong preferences for individual adaptation of the home choose ownership. This article analyses the consumer’s optimization. The model provides an explanation for the observation that homeowners typically live in larger dwelling units than tenants. It also provides an explanation for a high price of housing services tending to reduce homeownership rates.     

Housing, taxation and retirement provision

This paper considers the tax treatment of housing and the issue of savings for retirement in the context of a simplified model that still allows key aspects of the household context to be realistically represented. A model is developed in which both housing and financial assets can be used as vehicles for household saving. Individuals face perfect capital markets and choose between owner-occupied and rented accommodations. For the model developed, it is shown that the tax advantage of owner-occupied housing is not fully removed even if imputed rents are subject to income taxation. However, deferred income taxation for both housing and savings in the form of financial assets would result in an equal treatment of tenants and owner-occupiers.     

Going Off Script: How Managers Make Sense of the Ending of Their Careers

The extant retirement literature primarily focuses on factors that influence the decision to retire and the generic retirement decision‐making process. While these approaches have extended our understanding of retirement decision‐making, we propose a sensemaking perspective that orients our attention towards the subjective meanings people attach to the factors that trigger the retirement decision, rather than simply the factors themselves. Accordingly, we see the retirement decision‐making process as bounded by situational constraints and rooted in identity work. Based on interviews with 48 retired Canadian executives and managers, we use thematic narrative analysis to identify six types of end‐of‐career narratives. Drawing on these narratives, we present a model of identity work that distinguishes between retirement decision‐making factors that are perceived as identity opportunities and those that are perceived as identity threats. Our findings contribute to scholarly understanding of subjective meanings and identity considerations in the process of ending one's career.     

Lack of early engagement: a pre‐eminent barrier to Australian university bequest giving?

• Decreased government funding has placed increasing financial pressure on Australian universities. Currently Australian universities receive 6.6% of all donations to nonprofit organisations in Australia while universities in the United States attract 14%. These figures suggest there is considerable room for improvement for Australian universities. Efforts directed towards adding to knowledge of philanthropy to universities in Australia are, therefore, very topical at present. Despite acknowledged differences between the types of literature on gift‐giving it predominately centres on the motivation to donate to nonprofit organisations during an individual's lifetime (in vivo giving) with less focus on bequests. This exploratory study sought to gain insight into barriers to Australian University bequests. Lack of alumni engagement in Australian Universities was identified as a primary bequest barrier. Barriers identified previously in the literature (e.g. communications quality, performance, insensitive marketing) were considered secondary barriers to bequests. The results suggest a long term strategy is needed for Australian Universities seeking to improve donations. Universities need to engage students from the start of their academic tenure in order to be considered for a bequest. This paper proposes a model which highlights the consequences of this lack of early engagement and identifies key points in the academic and post‐academic process where successive challenges increasingly diverge the student from the university's bequest prospects.

Copyright © 2009 John Wiley & Sons, Ltd.     

Revisiting Informal-Sector Home Ownership: The Relevance of Household Composition for Housing Options of the Poor

This article examines the linkages between the housing options of the poor and their household composition. It gathers field data among renters and owners in low-income neighborhoods of Guadalajara, Mexico, and it argues that informal-sector home ownership is not favorable to the conditions of female householders. Thus, housing assistance programs that focus solely on conditions of housing in informal settlements and that promote home ownership in peripheral areas practice a discriminatory approach to housing that cannot serve the needs of a growing percentage of low-income households. Meanwhile, inner-city rental units, with the greatest concentration of female householders, are being allowed to deteriorate and may soon be erased from the city's landscape on account of real estate pressure. The paper calls for housing policy-makers and researchers to broaden their scope of concern to include renting and sharing as important shelter alternatives of the poor, and also to account for the variations in housing strategies of the poor based on changing patterns of household composition.     

A survey of enterprise reforms in China: The way forward

The strategic importance of the state-owned enterprise (SOE) sector to the Chinese economy cannot be underestimated, thus the success of SOE reform is a significant factor in China's future economic prosperity. The dilemma facing state authorities is to develop market-orientated corporations while at the same time coping with potentially high unemployment and a range of equity and social justice issues. This paper presents an analysis of the current issues in SOE reform in China, drawing on relevant empirical evidence, and proposes a strategic direction and a framework for reform that challenges the recently announced program of privatization of listed SOEs. The literature indicates that state ownership is generally negatively correlated to performance. Conversely, Legal Person ownership positively influences performance. Other forms of private ownership are generally positively correlated to performance, with institutional ownership showing significant promise. Consequently, the divesture of state ownership is recommended and could be accomplished over three or four tranches. The state could divest its ownership by auction to strategic investors, both domestic and foreign, and in the next tranche an auction to the broad populace through units in mutual funds. The final proposed tranche being a distribution to nationwide pension funds to support retirement schemes, which should be made nationwide. Finally, listed firms should also issue shares as rights issues to offer present shareholders protection from dilution.     

Tenure choice and the riskiness of non-housing consumption

This paper analyzes a household's choice of housing tenure within a dynamic utility maximization model that yields simple analytical results under uncertainty of income, housing prices, and rents. Given a housing consumption plan, we show that a decrease in the covariance between a household's earnings and housing rents increases the likelihood of ownership. A household who plans to remain in its home over a long period is more likely to own; a household who plans to remain in its home over a short period is more likely to rent. The higher the covariance between the user cost of a home and that of other properties a household is likely to consider in the future, the more likely the household is to own this home. These predictions of our model find support in recent empirical studies.     

主房反向抵押贷款支持老年人收入拓展

在当前全球人口老龄化趋势下,如何解决由此产生的老龄人口退休收入短缺及财政困境成为各国学者及政策制定者关注的热点。住房反向抵押贷款作为拓展老年人退休收入的一种金融创新手段,在欧美市场已经发展成为一种成熟的金融工具。随着9月国务院提出“开展老年人住房反向抵押养老保险试点”,“反向抵押贷款”模式的“以房养老”再次进入公众视野,成为当前公共政策研究热点,并引发了民众关于“政府在养老体系中责任”的大辩论。本文以此为契机,通过已有的文献构建反向抵押贷款理论框架,讨论反向抵押贷款的优缺点、风险及影响反向抵押贷款市场的相关变量,系统还原这一金融工具的运行机制,消除公众对其的误解并结合这·理论框架探讨‘‘反向抵押贷款’雀本土化过程中存在的困境。本文认为,在中国,遗产赠予动机是老年住房自有者在当前住房市场下为实现整个家庭代际福利最大化做出的“理性选择”;‘饭．向抵押贷款”中贷款金融机构面临的风险高于借款人,老年人实现住房资产的流动性是以牺牲贷款金融机构现金流动性为代价的。因此,未来需要探讨的是,政府在推进的过程中如何降低各方风险,减少未知不确定J}生风险的问题。     

How do services of owner-occupied housing affect income inequality and redistribution?

This paper aims at analyzing the redistributive impact that the inclusion of the imputed rental market value of owner-occupied housing would have if used for quantifying the ability to pay rather than imputation based on cadastral values. We consider the Spanish personal income tax as reference, due to the differential treatment that it provides for imputed income from owner-occupied housing, together with the exceptionally high percentages of home ownership in Spain. By means of micro-simulation we explore the consequences of alternative possibilities for dealing with implicit income from owner-occupied housing.     

Marital history and home ownership: Evidence from Australia

The relative cost of owning and renting housing and housing affordability have been clearly established as important determinants of home ownership. But the roles of marital status and history have been largely ignored. In this paper we show that both current marital status and past history affect ownership. Past history matters because wealth accumulation is greater among couple households than singles owing largely to economies of scale in housing consumption. Moreover, wealth is lost upon divorce. In effect, past marital history affects the affordability of owner housing. This result is shown in the estimation of model explaining wealth, leverage and tenure choice using Australian datasets.