Life-cycle Income Research Articles

Human Resource Investment and Early-Stage Career Choice: Evaluating Work–Life Income Paths in 21st-Century Canada

Of necessity, people make many investment decisions regarding their human resource stock early in their life cycle, long before outcomes predicated upon those choices are realized. Different choices involve very different initial effort and financing outlays and issues arise as to how these alternative paths can be compared and evaluated. Here, techniques for the cardinal comparison of human resource contingent work–life-cycle income value profiles under alternative income valuation function assumptions are outlined and instruments for examining potential ambiguities in comparison developed. All are applied in an analysis of the impact of different levels of investment of human resources in 21st-century Canada. The results, with one notable exception (the choice for boys between a trade or a bachelor-level degree), indicate unambiguous life-cycle benefits to higher levels of human resource stock investment for both girls and boys. Within gender, best–worst relative magnitudes are increasing over time for both genders but more so for girls. Boys are enjoying a universal but diminishing premium over time, reflective of male–female income convergence.

Permanent Income Hypotheses and Life Cycle Income Hypotheses to Study Consumption Behavior

Permanent Income Hypotheses and Life Cycle Income Hypotheses to Study Consumption Behavior

Permanent Income Hypotheses and Life Cycle Income Hypotheses to Study Consumption Behavior

The current study aims to clarify the relationship between environmental innovation and environmental sustainability, as the study assumes that environmental innovation contributes to achieving environmental sustainability. For the purpose of testing the research hypothesis, the researcher distributed (300) questionnaires to workers at Al-Ittihad Food Industries Limited. (295) questionnaires were received and their ratings were good. (275) questionnaires were used for analysis, and the advanced statistical program SmartPLS was used. The study reached a number of conclusions, the most important of which is that the relationship between environmental innovations and environmental sustainability is positive and important. The research presented a number of recommendations, the most important of which is that agencies and institutions work with all relevant parties to encourage innovation. Environment to promote environmental sustainability.

Optimized design of patrol path for offshore wind farms based on genetic algorithm and particle swarm optimization with traveling salesman problem

SummaryWith the rapid expansion of global offshore wind power market, the research on improving the full life cycle income and reducing the construction and operation and maintenance costs has attracted the attention of scholars in the industry. In view of the different aging degree and maintenance cycle of wind turbines, this paper studies the optimized design of patrol path for offshore wind farms based on genetic algorithm (GA) and particle swarm optimization (PSO) with traveling salesman problem (TSP). Firstly, the problem of patrol routing planning in offshore wind farms is described as the traveling salesman problem of shortest route optimization. Secondly, the GA and PSO algorithms are simulated and verified separately, and the patrol path distance is taken as the objective function. Finally, through simulation experiments, the optimized patrol path performances of PSO and GA are compared, which can help to find a shortest route and reduce the operation and maintenance costs.

한국 가계빈곤의 결정요인 분석

Purpose: As household characteristics are differently associated with poverty within population sub-groups, the present study examines the determinants of household poverty by gender and age of a household heads in Korea.
 Research design, data, and methodology: The present study examines the association between a vector of household demograpic and socioeconomic characteristics and poverty. Specifically, sample household survey is decomposed into male and female headed households, and elderly and non-elderly headed households to assess how attributes to poverty vary depending on population sub-goups. For empirical analysis, this study draws upon the recent national representative household data, survey of household finance and living conditions (SFLC) 2021 collected by Korea Statistical Office.
 Results: Three findings are highlighted; (1) household head’s age is prone to poverty for the non-elderly male-headed households but not for the non-elderly female headed households, partly reflecting relative weakness in earning power of female in labour market.; (2) the type of Job occupation of a household head has different effects on the elderly male and the elderly female households; (3) a hump-shape relationship between a household head’s age and poverty, partly capturing the life-cycle income hypothesis, is only observed from the non-elderly households whilst the relationship was linear for the elderly household. Finally we found that education played a role for the elderly household from anti-poverty perspective but not for the non-elderly household.
 Implications: Some findings suggests policy implication related to poverty relief. For example, the different age effect of poverty between the non-elderly male and the non-elderly female headed households for partly implies the weakness of earning power in income generating activities and suggests a government anti-poverty intervention should be taken into account wage differential stemming from gender discrimination in labour market.

Household Wealth and Inheritance Transfers: Evidence from the Euro Area.

The accumulation of wealth by households is an essential contributor towards macroeconomic and financial stability and resilience, while also affecting social mobility. The aim of this paper is to analyze the relationship between household wealth and the receipt of inheritances and intergenerational transfers. We use detailed micro-level data from the 2017 vintage of the Household Finance and Consumption Survey (HFCS) for households across the Euro Area in order to explore this relationship in detail, analyzing various classes of assets and liabilities, together with inflows of inheritances and gifts between 2014 and 2017, as well as any associated wealth effects. The results show that inheritance flows are positively and significantly-associated with net overall household wealth, primarily via increases in the value of liquid assets like publicly-traded shares and the value of existing self-employment business, while reducing mortgage debt, particularly outstanding loans related to the household’s main residence. We find no evidence of any wealth effects from inheritances in terms of increased consumption expenditure, leisure spending or motor vehicle ownership. These findings collectively suggest that households anticipated the bequests received, with behavior in line with predictions emanating from standard rational expectations life cycle income hypothesis models.

College and Lifecycle Earnings Inequality

Has a rising college earnings premium contributed to increased earnings inequality over the past 50 years? I answer this question with a model of college linked to a Ben-Porath human capital problem. The model is estimated from data on college attainment rates and lifecycle income profiles, which I document by education level. I find that lifetime earnings inequality within cohorts has risen significantly since the 1970s but little of this is directly attributable to the college premium. Higher tuition is also not particularly important. Increasing earnings risk seems to be the main driver, with higher college return dispersion a contributing factor.

IMPACT OF DIFFERENT LIFE-CYCLE SAVING STRATEGIES AND UNEMPLOYMENT ON INDIVIDUAL SAVINGS IN DEFINED CONTRIBUTION PENSION SCHEME IN SLOVAKIA

Searching for the optimal saving strategy is often tied with the life-cycle strategies where only the age of a saver is considered for setting the allocation profile between equities and bonds. Our article contributes to the debate by looking at the performance and adequacy risks arising from applying age-based saving strategies for savers in funded pension schemes. As many studies have proven the shift of the risk onto savers in defined contribution pension schemes under various saving strategies, we contribute to the debate by providing simulations of expected accumulated savings via funded pension scheme under the various life-cycle income profiles and existence of unemployment risk. Using the resampling simulation technique, we compare the fixed and age-based strategies of three different agents with various life-cycle income paths and different unemployment risk. We compare the expected amount of savings and calculate relative indicators comparing the expected monthly benefits, income replacement rate. We look closely on the impact of unemployment on the value of savings and calculate the unemployment factor explaining the value of savings lost due to the periods of unemployment. By combining life-cycle income functions of individuals with different education level and unemployment risk, we show that decisions of implementing low risk saving strategies are suboptimal and lead to a substantial decrease in replacement ratios not only for higher income cohorts but especially for the lowest ones. At the same time, we prove that employing low risk saving strategy leads to the increase of adequacy risk especially driven by the unemployment risk that is higher for lower education individuals. We conclude that age-based life-cycle saving strategies, where the remaining saving horizon is the only factor defining the allocation profile is not the optimal saving strategy and other factors should be considered as well when searching for optimal saving strategy.

Time Variation in Lifecycle Consumption and Income

We document systematic and significant time variation in US lifecycle non-durable consumption profiles. Consumption profiles have consistently become flatter: differences in consumption across generations have decreased. Pooling data across different periods to identify lifecycle profiles masks relevant time variations and may artificially generate hump-shaped consumption age profiles. The main driver behind lifecycle consumption variations are lifecycle income changes, which display similar flattening. Employing a lifecycle model we show changes in income are sufficient to match the movements in consumption. The contributions of credit, housing and interest rates changes are quantitatively small.

Earnings Dynamics and Its Intergenerational Transmission: Evidence from Norway

As part of a cross-country research consortium, in the first part we use administrative data from Norway between 1993 and 2017 to present stylized facts about individual earnings dynamics. Some of our key findings are as follows. (i) Norway has not been immune to the recent increase in top income inequality observed in other countries. (ii) Earnings dispersion below the 90th percentile declines sharply over the life cycle but increases significantly for those in the top 10%. (iii) The earnings growth distribution is left-skewed and leptokurtic, the extent of which varies with age and past earnings. (iv) Finally, earnings in the top 1% are highly persistent even relative to those in the top 2% or 5%. Abstract In the second part, we exploit a longer panel dating back to 1967 to investigate the intergenerational transmission of income dynamics. First, we find that children of high-income and high-wealth fathers enjoy steeper income growth over the life cycle and face more volatile but more positively skewed income changes, suggesting that they are more likely to pursue high-return and high-risk careers. Second, the income dynamics of fathers and children are strongly correlated. In particular, the children of fathers with steeper life-cycle income growth, more volatile incomes, or higher downside risk also have income streams of similar properties. These findings shed light on the determinants of intergenerational mobility.

Projecting a Life-cycle Income – a Simulation Model for the Slovak Pension Benefit Statement

The introduction of a regulation requiring pension asset managers to provide savers with an estimation of pension benefits opened a wide range of scientific questions on the projection methods and estimation of input parameters. One of them is the estimation of life-cycle income for calculating expected contributions and the estimation of the benefit ratio at the moment of retirement. We present an estimation of life-cycle income functions for various age and educational cohorts influenced by temporary labor market shocks. By employing the resampling simulation method for incorporating macroeconomic shocks, we have shown that using longitudinal data on the income process from a large closed economy could bring valid results for a country with a small open economy as well where the longitudinal data on income processes of individuals are unavailable. Our findings could serve a practical use when pension or other social benefits tied to individual income should be modelled.

Health dynamics shape life-cycle incomes

This paper empirically investigates the long-run effects of major health improvements on income growth in the United States. To isolate exogenous changes in health, the econometric model uses quasi-experimental variation in cardiovascular disease mortality across states over time. Based on data for the white population, the results show that there is a causal link between health and income per person, and they provide novel evidence that health dynamics shape life-cycle incomes. Life-cycle income profiles slope more strongly at the beginning and at the end of work life in 2000 than in 1960, indicating that age becomes a more prominent determinant of income dynamics over this period. The channels for this transformation include better health, higher educational attainment, and changing labor supply.

Generational Differences in Life-Cycle Income among Farm Households

Understanding dynamics behind farm household income provides insights to foresee future income change among farm households. To better understand the change in farm household income, this study decomposes farm household income by age effects, cohort(generation) effects, and year effects. Constructing pseudo panel by birth year of household heads, this study investigates which factor affects farm household income. The results show that age effects are pronounced in farm household income, agricultural income, and non-agricultural income. Farm household income moves drawing inverse U shape. Moreover, cohort effects show that younger generations have earned more income than older generation, which has been resulted from economic growth. It is also noteworthy that transfer from public sector increases by age and younger generations receive more benefits from government than older generations while transfer from family and friends changes in different directions. This implies that the role of government is getting bigger in safety net among farm households and welfare expenditure is likely to explosively increase as farm population rapidly gets old.

Projections of pension benefits in supplementary pension saving scheme in Slovakia

New Institutions for Occupational Retirement Provision Directive, effective since 2019, lays down new information requirements for all pension providers across the EU. The directive requires providers to supply their members and savers with a Pension Benefit Statement on a regular basis. The Pension Benefit Statement should inter alia contain the projections of future pension benefits that can reasonably be expected at the moment of retirement. However, the directive does not provide any further technical specification on the methods and processes of pension benefit projections. Our motivation is to contribute to this issue and present possible approaches on pension benefit projections. The complexity of pension benefit projections requires consideration of not only expected returns on various asset categories, but also the correlation between other variables such as expected life-cycle income or decisions on the default saving strategy. Our results provide indications on the possible solutions and compare the projected pension benefits using three simulation methods with back-tested results using real supplementary pension funds operating in Slovakia.

Time Variation in Lifecycle Consumption and Income

We document systematic and significant time variation in US lifecycle non-durable consumption profiles. Consumption profiles have consistently become flatter: differences in consumption across generations have decreased. Pooling data across different periods to identify lifecycle profiles masks relevant time variations and may artificially generate hump-shaped consumption age profiles. The main driver behind lifecycle consumption variations are lifecycle income changes, which display similar flattening. Employing a lifecycle model we show changes in income are sufficient to match the movements in consumption. The contributions of credit, housing and interest rates changes are quantitatively small.

The Self-Employment Option in Rigid Labor Markets: An Empirical Investigation

This paper studies selection into and returns to self-employment in labor markets with stringent employment protection. Using Spanish administrative panel data, we characterize self-employment dynamics in the presence of rigidities that affect workers’ outside options. We document the negative selection into self-employment when workers enter from unemployment, and the pro-cyclicality of the decision. We identify career heterogeneity in the data and estimate a rich life-cycle income process. The self-employed face shocks with smaller variances but lower returns compared to fixed-term workers—the prevalent contract out of unemployment. These facts call for a revision of active labor market policies in place.

Financing tertiary education in Indonesia: assessing the feasibility of an income-contingent loan system

This paper examines the feasibility of an income-contingent loan system to finance tertiary education in Indonesia. Using graduates’ income data from the 2015 National Labor Force Survey, we modeled the life-cycle income distribution of university graduates using unconditional quantile regression. We used these estimates to simulate different income-contingent loan (ICL) schemes to observe the effect on the amount of repayment, length of repayment, government subsidy, and repayment burden of males and females in different quantiles of income. We simulated three loan schemes: without real interest, with a 25% surcharge on the total loan, and with 2% real interest. Implicit government subsidy was lowest with the 25% surcharge scheme. Results showed that ICL with a lower repayment burden is feasible in Indonesia and can increase access to tertiary education. We also discussed the administrative capacity among tax authorities.

Health Dynamics Shape Life-Cycle Incomes

This paper empirically investigates the long-run effects of major health improvements on income growth in the United States. To isolate exogenous changes in health, the econometric model uses quasi-experimental variation in cardiovascular disease mortality across states over time. The results show that there is a causal link between health and income per person, and they provide novel evidence that health dynamics shape life-cycle incomes. Compared to previous generations, life-cycle income profiles slope more strongly at the beginning and at the end of work life, such that age becomes a more prominent determinant of income dynamics. The channels for this transformation include better health, higher educational attainment, and changing labor supply.

Time Preferences, Intertemporal Optimization, and the Permanent Income-Life Cycle Hypothesis

This paper analyzes how the three lines of development, namely, the structure of dynamic recursive preferences, Pontryagin's maximum principle, and the permanent income-life cycle hypothesis, are interrelated in the context of consumer choice in continuous time. First, by introducing variational changes in consumption around two different points in time that are compensating to the lifetime utility or having canceling effects on asset accumulation, we define and compute the marginal rates of substitution and transformation and express the optimality condition in terms of the instantaneous time rates of change of these rates. This condition is then related to the Bohm-Bawerkian and Fisherian rates of time preference, which are defined, calculated, and shown to give an equivalent measure whether inclusive of the first order change of consumption or not. The Keynes-Ramsey rule of consumption is related to this optimality condition and is given a new interpretation. Second, we inquire into the preference basis of the permanent income-life cycle hypothesis and show explicitly that the proportionality of optimal consumption to wealth and permanent income follows from the homotheticity of recursive time preferences and a dynamic budget constraint, thereby confirming that the hypothesis, as originally conceived by Friedman and Modigliani-Brumberg, is a dynamic version of the static demand under homothetic preferences.

Over-aging — Are present-day human populations too old?

This paper investigates the problem of an “optimum population” concerning age structures in a 3-period OLG-model with endogenous fertility and longevity. The first-best solution for a number-dampened total social welfare function, including Millian and Benthamite utilitarianism as two extreme cases, identifies the optimal age structure, which generally fails in laissez-faire economies. As individuals do not internalize the effect of longevity on life-cycle income, they over-invest in health. Additionally, they choose a non-optimal number of offspring. A calibration exercise for 80 countries emphasizes that the over-aging of populations crucially depends on social preferences and on observed age structures. Interestingly, it appears that, unlike taxes on health expenditures, taxes or subsidies on children to decentralize the first-best solution are sensitive to social preferences. Still, with the introduction of sufficiently large positive externalities of health expenditures or of individuals who do not fully internalize the effect of health efforts on longevity, taxes might become subsidies on health efforts to avoid an under-investment in longevity.