ETLA Piekkola & Harmoinen AGIR & DEMWEL Seminar June, 2003 ETLA, Helsinki Options for Retirement: Health and Time Use in a Cross-Section of Countries

ETLA Piekkola & Harmoinen OUTLINE OF PRESENTATION Introduction Allocation of time: considering total working time Withdrawal from labour force Welfare regimes Data Methods Net replacement rate Option value Health status Results Time use Net replacement rates Option values Conclusions

ETLA Piekkola & Harmoinen TIME USE DATA, AGEING POPULATION, AND LABOUR MARKET RESEARCH Previous work at ETLA: Ruuskanen, Olli-Pekka: Replacement Rates and Reservation Wages Considering the Value of Household Work and Lost Leisure (Etla Discussion Paper 588, 1997) Huovinen, Pasi and Hannu Piekkola: The Time is Right? Early Retirements and Use of Time by Older Finns (ETLA B ) Applications of time-use data: Economic and social accounting (macro-level) Descriptive analyses, household production, labour market behaviour (micro-level)

ETLA Piekkola & Harmoinen WITHDRAWAL FROM THE LABOUR FORCE Scherer, P. (2002) Age of Withdrawal from the Labour Force in OECD Countries. Labour Market nad Social Policy Occasional Papers. No. 49. OECD Table 1. Average ages of withdrawal from the labour force

ETLA Piekkola & Harmoinen TIME-GEOGRAPHICAL AUTHORITY CONSTRAINT AND ALLOCATION OF TIME BETWEEN WORKPLACE AND HOME MASTER’S THESIS MAY 6, 2003 Liisa Harmoinen

ETLA Piekkola & Harmoinen OBJECTIVES AND RESEARCH QUESTIONS Ageing, Health, and Retirement in Europe – project, ETLA Labour market behaviour and time use of the ageing Are there differences in time use btw. groups and countries? Effect of the value of household work on labour market behaviour?

ETLA Piekkola & Harmoinen THEORETICAL FRAMEWORK Time Geography Constraints to activity Economic Theory Allocation of time Welfare Regimes Social security Allocation of time between workplace and home

ETLA Piekkola & Harmoinen TIME GEOGRAPHY AND CONSTRAINTS TO ACTIVITY Capability constraint Physiological and physical characteristics and needs Coupling constraint Places, resources, other people Authority constraint Legislation, authorities, rules, norms

ETLA Piekkola & Harmoinen ACTIVITY TRAJECTORY: daily vs. lifetime Space Time shop home work

ETLA Piekkola & Harmoinen AUTHORITY CONSTRAINT: Welfare Regimes Nordic Regime: Finland, Denmark Continental Regime: Belgium, Germany, Netherlands British Regime: United Kingdom Southern Continental: Portugal

ETLA Piekkola & Harmoinen WELFARE REGIMES

ETLA Piekkola & Harmoinen WELFARE REGIMES: Time Use Approach

ETLA Piekkola & Harmoinen STRUCTURALISTIC VIEW OF THE SOCIETY

ETLA Piekkola & Harmoinen ALLOCATION OF TIME: Total Work Assume people consider total work time (paid work+domestic work) when allocating time between work and leisure to maximize utility Value domestic work with net wage for this kind of work Account for increase in domestic work in non-employment Production function for household goods

ETLA Piekkola & Harmoinen ALLOCATION OF TIME: Total Work M s The effect of social security payments by the employer M m The effect of wage tax rate M k The effect of consumption tax rate Utility function Production functions Time constraint Goods constraint

ETLA Piekkola & Harmoinen DATA MTUS data 24 countries, 50 time-use surveys Harmonized data Original Data (Belgium), Denmark, Finland, Germany, The Netherlands, UK, (Portugal) Finland 1999/2000 follows new Eurostat standards one weekend & one weekday demographic and income variables linked Table 2. Countries and survey years covered

ETLA Piekkola & Harmoinen METHODS Document time use in household work Wage rates, social security payments, tax treatment Estimating health status Replacement rates Option values

ETLA Piekkola & Harmoinen NET REPLACEMENT RATE Net replacement rate = net pension + value of household work net earnings + value of household work

ETLA Piekkola & Harmoinen Option Value = lifetime utility, retire at future (optimal) age - lifetime utility, retire now OPTION VALUE

ETLA Piekkola & Harmoinen ESTIMATING HEALTH STATUS Finnish data includes self-assessed health variables unhealth = ”notable health problems” 5%-15% of 45 to 59-year- olds ECHP: ”very poor -very good” five categories

ETLA Piekkola & Harmoinen LOGISTIC ESTIMATION OF HEALTH STATUS Logistic model to explain health problems in Finland, predict health status in other countries Socio-economic variables, time use income education family working hours

ETLA Piekkola & Harmoinen LOGISTIC ESTIMATION OF HEALTH STATUS: Finland

ETLA Piekkola & Harmoinen LOGISTIC ESTIMATION OF HEALTH STATUS: Finland

ETLA Piekkola & Harmoinen LOGISTIC ESTIMATION OF HEALTH STATUS: Other Countries

ETLA Piekkola & Harmoinen Women (10 hours) and the unhealthy ( 2-5) adjust total work supply by less after withdrawal from work Less work than men and the healthy before, more work after withdrawal from work Domestic work increases 10 hours in non-employment for both sexes 5.2 €/h=2704 €/a Female shares 1/2 of total work 2/3 of domestic work Non-employed and the unhealthy share all work more equally MAIN TIME USE RESULTS

ETLA Piekkola & Harmoinen Table 4. Total work by gender, employment status, and health (hours per week) Low burden: Denmark, High burden: Portugal, UK Women adjust total work 10 hours less than men with respect to employment status The unhealthy: Unhealthy men work less, health has no effect among the non- employed Unhealthy women work less, employed and non-employed TOTAL WORK = Work + Domestic Work

ETLA Piekkola & Harmoinen DOMESTIC WORK Table 5. Domestic work by gender, employment status and health (hours per week) Women supply 11 hours more domestic work than men Domestic work increases in non-employment Healthy: 10.1 hours for men and 10.3 for women Unhealthy: 8.1 hours for men and 2.4 hours for women

ETLA Piekkola & Harmoinen Table 6. Female share of unpaid work time by employment status and health Women do 2/3 of domestic work Unhealthy and the non-employed share domestic work more equally FEMALE SHARE OF DOMESTIC WORK

ETLA Piekkola & Harmoinen PAID WORK Men supply 10 hours more paid work than women Continental countries: equal allocation Perhaps household work services bought more than elsewhere Table 7. Weekly hours of paid work by gender and female share of paid work

ETLA Piekkola & Harmoinen CONCLUSIONS: Time Use Men and women contribute equally to total work in most countries, allocation of total work between paid work and domestic work based on the specialisation of work Dual burden most relevant for young workers with children, not for older workes Allocation of additional time towards domestic work greater form men after withdrawal from work Huovinen and Piekkola (2002) also find that allocation of time is a much more important determinant for retirement for men than for women. This is also shown in the positive effect of active time use on the probability to retire.

ETLA Piekkola & Harmoinen REPLACEMENT RATE Value of domestic work while at work on average 1/3 of net earnings for men and 2/3 of net earnings for women After retirement relative value of domestic work exceeds annual pension income for both genders Changes in domestic work greater for men Value of domestic work almost doubles after retirement

ETLA Piekkola & Harmoinen REPLACEMENT RATE Replacement rates on average close to 100 percent when domestic work is accounted for The effect of domestic work greater for women 40 percent for men and 45 percent for women The average replacement rates (age at last year of work years) Women: 101 % with domestic work and 69 % without Men 93 % and 67 % With the exclusion of domestic work slightly lower for men than for women; replacement rate decreases with increasing income level

ETLA Piekkola & Harmoinen REPLACEMENT RATE: Men Table 8. Net replacement rates accros countries for men

ETLA Piekkola & Harmoinen REPLACEMENT RATE: Women Table 9. Net replacement rates accros countries for women

ETLA Piekkola & Harmoinen OPTION VALUES FOR RETIREMENT Domestic work has two effects on option value: Replacement rate and pension wealth are higher Relative value of continuing to work and the accumulation of total income are lower because of foregone domestic work

ETLA Piekkola & Harmoinen OPTION VALUES: Belgium Additional domestic work after withdrawal from work worth 1500 € a year for men and 3200 € a year for women. Replacement rates are 95% for men and 125% for women Incentives to accumulate pension wealth are low

ETLA Piekkola & Harmoinen OPTION VALUES: Finland New system in 2005: Accrual 1.5 before age 53, 1.9 ages and 4.5 ages Pension wealth at 62 13,000 € higher for men, 14,800 € higher for women in the new system, as replacement rates are 5 percentage points higher Increase in domestic work 10 hours for men and 13 hours for women Men start at low level of domestic work, marginal value one of the highest with hourly net wage 7.8 € Difference btw net earned income and pension income 5,000 € after retirement, compensated by an equal increase in the value of domestic work. Individuals are rather indifferent whether to retire at age 62 or at age 68, women especially

ETLA Piekkola & Harmoinen Germany Additional domestic work after withdrawal from work worth 900 € Replacement rate 10 percentage points higher when domestic work included, 77%-79% at age 62 the German system can encourage postponement of retirement until 65 years of age or beyond for wome Encourage to work until 63 if individuals cannot draw any pensions earlier: deduction of pension at 3.6% per year if retirement occurs before 65 and an addition to pension at 6% per year if retirement is postponed

ETLA Piekkola & Harmoinen Netherlands Value for additional domestic work after retirement is relatively low 4000 € for men and 2900 € for women, but from low initial level Public pension system with flat pension implies low replacement rate around 87 percent (46 percent for men and 40 percent for women when domestic work is excluded) Incentives to retire are relatively low for low-income earners in the public system Optimal retirement age close to the pensionable age

ETLA Piekkola & Harmoinen United Kingdom Additional domestic work after withdrawal from work worth 4400 € a year for men and 3100 € a year for women Low replacement rates, 71% for men and 81% for women Strong incentives to postpone retirement

ETLA Piekkola & Harmoinen COUNTRY TABLES: Belgium

ETLA Piekkola & Harmoinen COUNTRY TABLES: Denmark

ETLA Piekkola & Harmoinen COUNTRY TABLES: Finland

ETLA Piekkola & Harmoinen COUNTRY TABLES: Germany

ETLA Piekkola & Harmoinen COUNTRY TABLES: Netherlands

ETLA Piekkola & Harmoinen COUNTRY TABLES: UK

ETLA Piekkola & Harmoinen REGIONAL DIFFERENCES Denmark most similar to Finland Finland similar to Netherlands and UK, partly to Portugal. UK similar to Portugal Central Europe with relatively short paid work hours and average domestic work hours: Germany Small countries and UK with long paid work hours and long domestic work hours for men and women Exceptions: Denmark with relatively little domestic work, but greatest similarity to Nordic regime. Table 10. Measures of dissimilarity (D) between pairs of countries in weekly hours of paid and household work by employed men and women.

ETLA Piekkola & Harmoinen REGIONAL DIFFERENCES IN RETIREMENT INCENTIVES Three groups: High replacement rate and flat option value curve after the pensionable age: Central Europe (Germany), Finland and Portugal High replacement rate and downward sloping option value curve since pensionable age: Belgium, the Netherlands. Low replacement rate and rising option value curve after the pensionable age: Denmark, UK

ETLA Piekkola & Harmoinen REGIONAL DIFFERENCES IN RETIREMENT INCENTIVES Expected lifetime at age years for men and 17 years for women (when considered at age 55) Pension accruals since pensionable age must be relatively high for the option value to be flat With high pension wealth (replacement rate) additional income from work is of low importance Finland: accrual at age at 4.5 percent annually With low replacement rates the option value after pensionable age can be upward sloping UK and Denmark

ETLA Piekkola & Harmoinen CONCLUSIONS: Retirement Accounting for the value of household work yields on average 40 percent higher net replacement rates and lower option values Continental Europe (Germany): high replacement rates and flat option value curves after the pensionable age Small countries are categorized to those with High replacement rate and flat option value curve after pensionable age (Finland and Portugal) High replacement rate and downward sloping option value curve after pensionable age (Belgium and Netherlands) Low replacement rate and rising option value curve after pensionable age (Denmark, UK)

ETLA Piekkola & Harmoinen CONCLUSIONS: Retirement Observed and optimal ages of withdrawal from work The optimal path for retirement quite close to the actual average retirement in countries with low option values such as Belgium and Netherlands (men). In some countries with high option values for continuing to work (Germany, Finland), pension wealth can, however, be high

ETLA Piekkola & Harmoinen CONCLUSIONS: Time use Differences in time use with respect to employment status, gender, and country Non-employed spend more time at home and supply more household work than the employed In most countries changes in domestic work after retirement are greater for men than for women Individual characteristics, such as the health status and own perception of life expectancy, arguably have a strong effect The unhealthy: smaller increase in domestic work after retirement, shorter life expectancy, less effect on option value?

ETLA Piekkola & Harmoinen OPTION VALUES: at age 55 (1000 €)

ETLA Piekkola & Harmoinen OPTION VALUES: at age 55 (1000 €)

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ETLA Piekkola & Harmoinen WELFARE REGIMES Table 3. Welfare regimes according to Esping-Andersen and Kosonen Esping-Andersen, Gøsta (1990). The Three Worlds of Welfare Capitalism. Polity Press, Cambridge Kosonen, Pekka (1994). European Integration: A Welfare State Perspective. University of Helsinki Sociology of Law Series No. 8. Yliopistopaino, Helsinki

ETLA Piekkola & Harmoinen WELFARE REGIMES: time use approach Table 4. Three alternative service economies according to Gershuny: time-use perspective Gershuny, Jonathan (2000). Changing Times. Oxford University Press, Oxford.

ETLA Piekkola & Harmoinen TOTAL WORK & WELFARE REGIMES Table 11. Total work by gender, employment status, and welfare regime, –year- olds (hours per week)

ETLA Piekkola & Harmoinen TOTAL WORK: Welfare Regimes Table x. Total work and female share of total work by welfare regime

ETLA Piekkola & Harmoinen DOMESTIC WORK: Welfare Regimes Table x. Domestic work and female share of domestic work by welfare regime

ETLA Piekkola & Harmoinen PAID WORK: Welfare Regimes Table x. Paid work and female share of paid work by welfare regime

ETLA Piekkola & Harmoinen EMPLOYMENT & WELFARE REGIMES Table 12. Employment rates by country and welfare regime, – year-olds (reported time-use in paid work).

ETLA Piekkola & Harmoinen TIME-GEOGRAPHICAL AUTHORITY CONSTRAINT AND ALLOCATION OF TIME BETWEEN WORKPLACE AND HOME MASTER’S THESIS MAY 6, 2003 Liisa Harmoinen

ETLA Piekkola & Harmoinen OBJECTIVES AND RESEARCH QUESTIONS Ageing, Health, and Retirement in Europe – project, ETLA Labour market behaviour and time use of the ageing Are there differences in time use btw. groups and countries? Effect of the value of household work on labour market behaviour?

ETLA Piekkola & Harmoinen THEORETICAL FRAMEWORK Time Geography Constraints to activity Economic Theory Allocation of time Welfare Regimes Social security Allocation of time between workplace and home

ETLA Piekkola & Harmoinen TIME GEPGRAPHY AND CONSTRAINTS TO ACTIVITY Capability constraint Physiological and physical characteristics and needs Coupling constraint Places, resources, other people Authority constraint Legislation, authorities, rules, norms

ETLA Piekkola & Harmoinen AUTHORITY CONSTRAINT: Welfare Regimes Nordic Regime: Finland, Denmark Continental Regime: Belgium, Germany, Netherlands British Regime: United Kingdom Peripheric Regime: Portugal

ETLA Piekkola & Harmoinen WELFARE REGIMES

ETLA Piekkola & Harmoinen WELFARE REGIMES: Time Use Approach

ETLA Piekkola & Harmoinen STRUCTURALISTIC VIEW OF THE SOCIETY

ETLA Piekkola & Harmoinen MAIN RESULTS Non-employed and women supply more household work than employed and men Value of household work affects incentive to retire: Higher net replacement rate Lower option value Differences between countries in functioning of authority constraint, some core – periphery consistency

ETLA Piekkola & Harmoinen HOUSEHOLD WORK

ETLA Piekkola & Harmoinen PAID WORK

ETLA Piekkola & Harmoinen NET REPLACEMENT RATES

ETLA Piekkola & Harmoinen OPTION VALUES: Belgium

ETLA Piekkola & Harmoinen OPTION VALUES: Denmark

ETLA Piekkola & Harmoinen OPTION VALUES: Finland

ETLA Piekkola & Harmoinen TIME USE AND WELFARE REGIMES