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Empirical Studies on Economic Risks, Demographic Change, and Public Policy: Dissertation

Externe Monographien

Johannes Geyer

Berlin: Freie Universität, 2012, V, 185 S.


This cumulative dissertation consists of three contributions that empirically analyse economic risks at the level of the individual and the household from different perspectives. The first analysis "Future public pensions and changing employment patterns across cohorts" aims to quantify the effects of labour market changes and pension reforms across birth cohorts in East and West Germany. The pension reforms since 1992 have reduced the generosity of the German pension system. While these reforms have improved the financial sustainability of the system, old-age poverty is expected to rise in the future. Furthermore, unemployment levels have been high and persistent in the past decades. And the "standard" full-time employment relationship covered by social security has lost significance. It is expected that both pension reforms and labour market changes will substantially reduce the level of public pensions for younger cohorts. To estimate these effects for cohorts born between 1937 and 1971, a microsimulation model is developed that accounts for cohort effects in employment biographies and pension reforms. The second contribution, "The effect of health and employment risks on savings", focuses on short-term economic risks of the active population. The central questions are whether and to what extent individuals build up assets as a precaution to expected variance in net household income. Involuntary unemployment constitutes one of the most important risks during the pre-retirement period. A key determinant of unemployment is health status. The estimation model is based on the theory of precautionary savings which adds a savings motive to the theory of intertemporal allocation. The basic hypothesis states that a part of accumulated savings provides insurance against future contingencies. Although the theoretical concept is stringent and plausible, the empirical literature has not been able to set approximate limits to the amount of savings that can be attributed to the precautionary motive. A key question for empirical studies is how to model economic uncertainty. A large number of studies has considered ex-post measures of income uncertainty. Instead, it is assumed that individuals perceive economic uncertainty as variation in income conditional on the expected likelihood of certain risks to occur in the future. Therefore, it is proposed to model uncertainty ex-ante as a step to improve on models that estimate the effect of the precautionary savings motive. The proposed ex-ante measure of net income risk takes into account the relation between health and unemployment risk. The uncertainty measure is then used as an explanatory variable to test the significance and importance of the precautionary savings motive in different savings models.. - The third contribution, "Dynamic Effects of Health on the Mismatch Between Actual and Desired Working Hours", examines how labour market restrictions interact with individual health resources. A majority of German men report to be "overworked", i.e. to work more hours than they wish to work. The determinants of the prevailing "hours disequilibrium" have not yet been well researched, which is astonishing given the success story of Germany's working hours flexibility. This chapter studies to what extent individuals in bad health are able to adjust working hours to their preferences. The model distinguishes between self-assessed health and legal disability status, which allows taking into account different aspects of the individual health status. Moreover, it tests how persistent divergences between realised and preferred working hours are.

Johannes Geyer

Deputy Head in the Public Economics Department

Keywords: Economic risks, demographic change, health, savings, pensions, desired working hours