Abstracts of Selected Recent NBER Working Papers

NBER Working Paper 12040
David M. Cutler, Mary Beth Landrum, Kate A. Stewart
How Do the Better Educated Do It? Socioeconomic Status and the Ability to Cope with Underlying Impairment

There is a pronounced gradient in disability across socioeconomic groups, with better educated and higher income groups report-ing substantially less disability. In this paper, we consider why that is the case, focusing on impairments in basic physical and cognitive aspects of living for the elderly. Our empirical work has two parts. First, we consider how much of this gradient in disability is a result of underlying differences in functioning versus the ability to cope with impairments. We show differences in functioning are the major part of the difference in disability, but both are important. Second, we consider how the better educated elderly cope with disability. Better educated people use substantially more assistive technology than the less educated and are more likely to use paid help. But use of these services is not the primary reason that the better educated are better able to cope. We conclude with thoughts about other potential factors that may explain differential coping.

NBER Working Paper 12048
Joanna Lahey
State Age Protection Laws and the Age Discrimination in Employment Act

Some antidiscrimination laws have the perverse effect of harming the very class they were meant to protect. This paper provides evidence that age discrimination laws belong to this perverse class. Prior to the enforcement of the federal law, state laws had little effect on older workers, suggesting that firms either knew little about these laws or did not see them as a threat. After the enforcement of the federal Age Discrimination in Employment Act (ADEA) in 1979, white male workers over the age of 50 in states with age discrimination laws worked between 1 and 1.5 fewer weeks per year than workers in states without laws. These men are also .3 percentage points more likely to be retired and .2 percentage points less likely to be hired. These findings suggest that in an antiage discrimination environment, firms seek to avoid litigation through means not intended by the legislation by not employing older workers in the first place.

NBER Working Paper 12057
Michael D. Hurd, Susann Rohwedder
Some Answers to the Retirement Consumption Puzzle

The simple one good model of life cycle consumption requires "consumption smoothing." According to previous results based on partial spending and on synthetic panels, British and U.S. households apparently reduce consumption at retirement. The reduction cannot be explained by the simple one good life cycle model, so it has been referred to as the retirement consumption puzzle. An interpretation is that at retirement individuals discover they have fewer economic resources than they had anticipated prior to retirement, and as a consequence reduce consumption. This interpretation challenges the life cycle model where consumers are assumed to be forward looking. Using panel data, we find that prior to retirement workers anticipated on average a decline of 13.3% in spending and after retirement they recollected a decline of 12.9%: widespread surprise is not the explanation for the retirement consumption puzzle. Workers with substantial wealth both anticipated and recollected a decline. Therefore, for many workers the decline is not necessitated by the fall in income that accompanies retirement. Poor health is associated with above average declines. At retirement time spent in activities that could substitute for market purchased goods increases. Apparently a number of factors contribute to the decline in spending, which, for most of the population, can be accommodated in conventional models of economic behavior.

NBER Working Paper 12080
Alan M. Garber, Charles I. Jones, Paul M. Romer
Insurance and Incentives for Medical Innovation

This paper studies the interactions between health insurance and the incentives for innovation. Although we focus on pharmaceutical innovation, our discussion applies to other industries producing novel technologies for sale in markets with subsidized demand. Standard results in the growth and productivity literatures suggest that firms in many industries may possess inadequate incentives to innovate. Standard results in the health literature suggest that health insurance leads to the overutilization of health care. Our study of innovation in the pharmaceutical industry emphasizes the interaction of these incentives. Because of the large subsidies to demand from health insurance, limits on the lifetime of patents and possibly limits on monopoly pricing may be necessary to ensure that pharmaceutical companies do not possess excess incentives for innovation.

NBER Working Paper 12102
Christopher J. Ruhm
A Healthy Economy Can Break Your Heart

Panel data econometric methods are used to investigate how the risk of death from acute myocardial infarction (AMI) varies with macroeconomic conditions after controlling for demographic factors, fixed state characteristics, general time effects and state specific time trends. The sample includes residents of the 20 largest states over the 1979 to 1998 period. A one percentage point reduction in unemployment is predicted to raise AMI mortality by 1.3 percent, with a larger increase in relative risk for 20-44 year olds than older adults, particularly if the economic upturn is sustained. Nevertheless, the much higher absolute AMI fatality rate of senior citizens implies that they account for most of the additional deaths. This suggests the importance of factors like air pollution and traffic congestion that increase with economic activity, are linked to coronary heart disease and may have particularly strong effects on vulnerable segments of the population, such as the frail elderly. AMI mortality risk quickly rises when the economy strengthens and increases further if the favorable economic conditions persist. This is consistent with strong effects of other short-term factors on heart attack risk and with health being a durable capital stock that is affected by flows of lifestyle behaviors and environmental conditions whose effects accumulate over time.

NBER Working Paper 12111
Karen Clay, Werner Troesken
Deprivation and Disease in Early Twentieth Century America

This paper explores how early life exposure to poverty and want adversely affects later life health outcomes. In particular, it examines how exposure to crowded housing conditions and impure drinking water undermines long-term health prospects and increases the risk of age related pathologies such as cancer, heart disease, kidney disease, and stroke. Exploiting city-level data from early twentieth century America, evidence is presented that cities with unusually high rates of typhoid fever in 1900 had elevated rates of heart and kidney disease fifteen years later; also cities with unusually high rates of tuberculosis in 1900 had elevated rates of cancer and stroke fifteen years later. The estimated coefficients suggest that eradicating typhoid fever (through water purification) and tuberculosis (through improved housing and nutrition) would have reduced later death rates from heart disease, cancer, stroke, and kidney disease by 23 to 35 percent.

NBER Working Paper 12113
Robert Kaestner, Xin Xu
Effects of Title IX and Sports Participation on Girls' Physical Activity and Weight

In this study, we examined the association between girls' participation in high school sports and the physical activity, weight, body mass and body composition of adolescent females during the 1970s when girls' sports participation was dramatically increasing as a result of Title IX. We found that increases in girls' participation in high school sports, a proxy for expanded athletic opportunities for adolescent females, were associated with an increase in physical activity and an improvement in weight and body mass among girls. In contrast, adolescent boys experienced a decline in physical activity and an increase in weight and body mass during the period when girls' athletic opportunities were expanding. Taken together, these results strongly suggest that Title IX and the increase in athletic opportunities among adolescent females it engendered had a beneficial effect on the health of adolescent girls.

NBER Working Paper 12123
Dhaval Dave, Inas Rashad, Jasmina Spasojevic
The Effects of Retirement on Physical and Mental Health Outcomes

While numerous studies have examined how health affects retirement behavior, few have analyzed the impact of retirement on subsequent health outcomes. This study estimates the effects of retirement on health status as measured by indicators of physical and functional limitations, illness conditions, and depression. The empirics are based on six longitudinal waves of the Health and Retirement Study, spanning 1992 through 2003. To account for biases due to unobserved selection and endogeneity, panel data methodologies are used. These are augmented by counterfactual and specification checks to gauge the robustness and plausibility of the estimates. Results indicate that complete retirement leads to a 23-29 percent increase in difficulties associated with mobility and daily activities, an eight percent increase in illness conditions, and an 11 percent decline in mental health. With an aging population choosing to retire at earlier ages, both Social Security and Medicare face considerable shortfalls. Eliminating the embedded incentives in Social Security and many private pension plans, which discourage work beyond some point, and enacting policies that prolong the retirement age may be desirable, ceteris paribus. Retiring at a later age may lessen or postpone poor health outcomes for older adults, raise well being, and reduce the utilization of health care services, particularly acute care.

NBER Working Paper 12124
David M. Cutler, Edward L. Glaeser
Why Do Europeans Smoke More than Americans?

While Americans are less healthy than Europeans along some dimensions (like obesity), Americans are significantly less likely to smoke than their European counterparts. This difference emerged in the 1970s and it is biggest among the most educated. The puzzle becomes larger once we account for cigarette prices and antismoking regulations, which are both higher in Europe. There is a nonmonotonic relationship between smoking and income; among richer countries and people, higher incomes are associated with less smoking. This can account for about one fifth of the U.S./Europe difference. Almost one half of the smoking difference appears to be the result of differences in beliefs about the health effects of smoking; Europeans are generally less likely to think that cigarette smoking is harmful.

NBER Working Paper 12147
David N. Weil
Population Aging

Population aging is primarily the result of past declines in fertility, which produced a decades long period in which the ratio of dependents to working age adults was reduced. Rising old age dependency in many countries represents the inevitable passing of this "demographic dividend." Societies use three methods to transfer resources to people in dependent age groups: government, family, and personal saving. In developed countries, families are predominant in supporting children, while government is the main source of support for the elderly. The most important means by which aging will affect aggregate output is the distortion from taxes to fund PAYGO pensions.