Vienna University of Technology Working Papers in Economic Theory and Policy
ISSN 2219-8849 (online)


ECON Working Papers
WP 06/2017   Clemens Lankisch, Klaus Prettner, and Alexia Prskawetz: Robots and the skill premium: an automation-based explanation of wage inequality show more


WP 06/2017

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Clemens Lankisch
Klaus Prettner
and Alexia Prskawetz

We analyze the effects of automation on the wages of high-skilled and low-skilled workers and thereby on the evolution of wage inequality. Our model explains the simultaneous presence of i) increasing per capita income, ii) declining real wages of low-skilled workers, and iii) an increasing skill-premium. These developments are consistent with the experience in the United States over the past decades.

WP 05/2017   Johannes Schünemann and Timo Trimborn: Boosting Taxes for Boasting about Houses: Status Concerns in the Housing Market show more


WP 05/2017

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Johannes Schünemann and Timo Trimborn

There is empirical evidence that households use residential houses as status goods. Their visibility qualifies them as an excellent signaling device of the relative income and wealth position, in contrast to less visible financial assets. To this end we introduce a residential housing sector and status concerns for housing into a neoclassical framework. In the model, households derive utility from the absolute amount of housing and from comparing their stock of housing to a reference stock, which is composed of the current or past level of housing of their peers. We analyze how status concerns affect household behavior and find that they increase housing demand and labor supply. Furthermore, we find that status concerns exert a negative externality and elevate housing to inefficiently high levels. We derive a (state contingent) optimal tax that establishes the first-best allocation along the transition path and at the steady state. Calibrating the model to the US we quantify the optimal tax on residential housing to 1.8%. Introducing the optimal tax entails a considerable welfare gain of 0.29% measured in consumption equivalents.

WP 04/2017   Johannes Schünemann, Holger Strulik and Timo Trimborn: The Marriage Gap: Optimal Aging and Death in Partnerships show more


WP 04/2017

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Johannes Schünemann
Holger Strulik and Timo Trimborn

Married people live longer than singles but how much of the longevity differential is causal and what the particular mechanisms are is not fully understood. In this paper we propose a new approach, based on counterfactual computational experiments, in order to asses how much of the marriage gap can be explained by public-goods sharing and collective bargaining of partners with different preferences and biology. For that purpose we integrate cooperative decision making of a couple into a biologically-founded life-cycle model of health deficit accumulation and endogenous longevity. We calibrate the model with U.S. data and perform the counterfactual experiment of preventing the partnership. We elaborate three economic channels and find that, as singles, men live 8.5 months shorter and women 6 months longer. We conclude that about 30% of the marriage gain in longevity of men can be motivated by economic calculus while the marriage gain for women observed in the data is attributed to selection or other (non-standard economic) motives.

WP 03/2017   Miguel Sanchez-Romero and Alexia Prskawetz: Redistributive effects of the US pension system among individuals with different life expectancy show more


WP 03/2017

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Miguel Sanchez-Romero and Alexia Prskawetz

We investigate the differential impact that pension systems have on the labor supply and the accumulation of physical and human capital for individuals that differ by their learning ability and levels of life expectancy. Our analysis is calibrated to the US economy using a general equilibrium model populated by overlapping generations, in which all population groups interact through the pension system, the labor market, and the capital market. Within our framework we analyze the redistributive and macroeconomic effects of a progressive versus a flat replacement rate of the pension system.

WP 02/2017   Ivan Frankovic: The Impact of Climate Change on Health Expenditures show more


WP 02/2017

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Ivan Frankovic

We study the effect of climate-induced health risks within a continuous time OLG economy with a realistic demography and endogenous mortality. Climate change impacts the economy through two channels. First, a degrading environmental quality increases mortality, affecting the demand for health care. Second, production losses are caused through deteriorating climate conditions and lead to reductions in income. We explore how individuals respond to these climate change impacts with respect to their life-cycle decisions and assess the overall effect on aggregate health care demand. We put special focus on age-specific vulnerabilities of climateinduced health risks and explore the response to climate change across age-groups. We solve the model numerically and show that health care demand is subject to two opposing forces. While climate-induced mortality increases demand for medical care, reduced income tends to lower health spending, particularly among the elderly. Moreover, we find that age-specific vulnerabilities to climate change considerably shape the effect on aggregate health care demand. Our analysis, thus, highlights the important role of a full life-cycle perspective in the estimation of climate-induced health costs.

WP 01/2017   Johanna Grames, Dieter Grass, Peter Kort, Alexia Prskawetz: Optimal investment and location decisions of a firm in a fl ood risk area using Impulse Control Theory show more


WP 01/2017

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Johanna Grames
Dieter Grass
Peter Kort
Alexia Prskawetz

Flooding events can affect businesses close to rivers, lakes or coasts. This paper provides a partial equilibrium model which helps to understand the optimal location choice for a firm in flood risk areas and its investment strategies. How often, when and how much are firms willing to invest in flood risk protection measures? We apply Impulse Control Theory and develop a continuation algorithm to solve the model numerically. We find that, the higher the flood risk and the more the firm values the future, i.e. the more sustainable the firm plans, the more the firm will invest in ood defense. Investmentsin productive capital follow a similar path. Hence, planning in a sustainable way leads to economic growth. Sociohydrological feedbacks are crucial for the location choice of the firm, whereas different economic settings have an impact on investment strategies. If flood defense is already present, e.g. built up by the government, firms move closer to the water and invest less in flood defense, which allows firms to accrue higher expected profits. Firms with a large initial productive capital surprisingly try not to keep their market advantage, but rather reduce flood risk by reducing exposed productive capital.

WP 11/2016   Holger Strulik and Timo Trimborn: Hyperbolic Discounting Can Be Good For Your Health show more


WP 11/2016

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Holger Strulik and Timo Trimborn

It has been argued that hyperbolic discounting of future gains and losses leads to time-inconsistent behavior and thereby, in the context of health economics, not enough investment in health and too much indulgence of unhealthy consumption. Here, we challenge this view. We set up a life-cycle model of human aging and longevity in which individuals discount the future hyperbolically and make time-consistent decisions. This allows us to disentangle the role of discounting from the time consistency issue. We show that hyperbolically discounting individuals, under a reasonable normalization, invest more in their health than they would if they had a constant rate of time preference. Using a calibrated life-cycle model of human aging, we predict that the average U.S. American lives about 4 years longer with hyperbolic discounting than he would if he had applied a constant discount rate. The reason is that, under hyperbolic discounting, experiences in old age receive a relatively high weight in life time utility. In an extension we show that the introduction of health-dependent survival probability motivates an increasing discount rate for the elderly and, in the aggregate, a u-shaped pattern of the discount rate with respect to age.

WP 10/2016   Michael Kuhn and Klaus Prettner: On the long-run growth effect of raising the retirement age show more


WP 10/2016

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Michael Kuhn and Klaus Prettner

We show that the long-run economic growth effect of an increase in the retirement age is unambiguously positive in research and development based endogenous growth models. This contrasts recent findings based on models of learning-by-doing-spillovers, in which an increase in the retirement age reduces physical capital accumulation and thereby economic growth. Our results imply that models based on learning-by-doing-spillovers, which are often used as a short-cut formulation for research and development based growth models, do not necessarily lead to similar policy conclusions.

WP 09/2016   Larisa Smirnykh and Andreas Wörgötter: The importance of institutional and organizational characteristics for the use of fixed-term and agency work contracts in Russia show more


WP 09/2016

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Larisa Smirnykh and Andreas Wörgötter

Non-renewable fixed-term and agency work contracts are becoming more used instead of the traditional Russian model of open-ended employment. The authors examine the influence of institutional and organizational factors on the use of two forms of non-standard work contracts in Russia with data from a Survey covering 3313 enterprises for the years 2009 to 2011. Probit and Tobit regressions are used to test several hypotheses about the use of non-standard work contracts derived from the literature. The results indicate that state-owned and unionized enterprises are more likely to use fixed-term contracts; and a high level of perceived dismissal protection for permanent workers is positively associated with fixed-term contracts use. The incidence and intensity of fixed-term and agency work contracts are lower at enterprises with flexible wages. A significant impact of organizational factors is confirmed only for fixed-term contracts. Enterprises use less fixed-term contracts, if they have workers with tenure from 5 to 10 years and high job complexity.

WP 08/2016   Daniel Croner and Ivan Frankovic: A Structural Decomposition Analysis of Global and National Energy Intensity Trends show more


WP 08/2016

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Daniel Croner and Ivan Frankovic

This paper analyses recent energy intensity trends of 40 major economies. Our main focus lies on the question whether improvements in energy efficiency were due to structural change towards a greener economy or a consequence of technological improvements. We account for intersectoral trade by using the World Input-Output database and adjust sector-specific energy use via the environmentally extended input-output analysis. We find strongdifferences between adjusted and unadjusted energy consumption across sectors, particularly in the construction and electricity industry. Using the three factor Logarithmic Mean Divisia Index method, our decomposition analysis shows that recent energy intensity reductions were mostly driven by technological advances. Structural changes within countries played only a minor role, whereas international trade by itself even increased global energy intensity. Compared to a previous study that used unadjusted sectoral energy data, we find structural effects on energy intensity reductions to be systematically weaker under adjusted data. The differences are particularly striking on a country-level, e.g. for Japan and Turkey.

WP 07/2016   Holger Strulik and Timo Trimborn: Natural Disasters and Macroeconomic Performance show more


WP 07/2016

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Holger Strulik and Timo Trimborn

Recent empirical research has shown that output and GDP per capita in the aftermath of natural disasters are not necessarily lower than before the event. In many cases, both are not significantly affected and, surprisingly, sometimes they are found to respond positively to natural disasters. Here, we propose a novel economic theory that explains these observations. Specifically, we show that GDP is driven above its pre-shock level when natural disasters destroy predominantly durable consumption goods (cars, furniture, etc.). Disasters destroying mainly productive capital, in contrast, are predicted to reduce GDP. Insignificant responses of GDP can be expected when disasters destroy both, durable goods and productive capital. We extend the model by a residential housing sector and show that disasters may also have an insignificant impact on GDP when they destroy residential houses and durable goods. We show that disasters, irrespective of whether their impact on GDP is positive, negative, or insignificant, entail considerable losses of aggregate welfare.

WP 06/2016   Miguel Sanchez-Romero, Hippolyte d'Albis, Alexia Prskawetz: Education, lifetime labor supply, and longevity improvements show more


WP 06/2016

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Miguel Sanchez-Romero
Hippolyte d'Albis
Alexia Prskawetz

This paper presents an analysis of the differential role of mortality for the optimal schooling and retirement age when the accumulation of human capital follows the so-called "Ben-Porath mechanism". We set up a life-cycle model of consumption and labor supply at the extensive margin that allows for endogenous human capital formation. This paper makes two important contributions. First, we provide the conditions under which a decrease in mortality leads to a longer education period and an earlier retirement age. Second, those conditions are decomposed into a Ben-Porath mechanism and a lifetime-human wealth effect vs. the years-to consume effect. Finally, using US and Swedish data for cohorts born between 1890 and 2000, we show that our model can match the empirical evidence.

WP 05/2016   Johannes Schünemann, Holger Strulik and Timo Trimborn: The Gender Gap in Mortality: How Much Is Explained by Behavior? show more


WP 05/2016

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Johannes Schünemann
Holger Strulik and Timo Trimborn

In developed countries, women are expected to live about 4-5 years longer than men. In this paper we develop a novel approach in order to gauge to what extent gender differences in longevity can be attributed to gender-specific preferences and health behavior. For that purpose we set up a physiologically founded model of health deficit accumulation and calibrate it using recent insights from gerontology. From fitting life cycle health expenditure and life expectancy we obtain estimates of the gender-specific preference parameters. We then perform the counterfactual experiment of endowing women with the preferences of men. In our benchmark scenario this reduces the gender gap in life expectancy from 4.6 to 1.4 years. When we add gender-specific preferences for unhealthy consumption, the model can motivate up to 88 percent of the gender gap. Our theory offers also an economic explanation for why the gender gap declines with rising income.

WP 04/2016   Klaus Prettner: The implications of automation for economic growth and the labor share of income show more


WP 04/2016

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Klaus Prettner

We introduce automation into the standard Solovian model of capital accumulation and show that (i) there is the possibility of perpetual growth, even in the absence of technological progress; (ii) the long-run economic growth rate declines with population growth, which is consistent with the available empirical evidence; (iii) there is a unique share of savings diverted to automation that maximizes the long-run growth rate of the economy; (iv) the labor share declines with automation to an extent that fits to the observed pattern.

WP 03/2016   Klaus Prettner and Andreas Schaefer: Higher education and the fall and rise of inequality show more


WP 03/2016

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Klaus Prettner and Andreas Schaefer

We investigate the effect of higher education on the evolution of inequality. In so doing we propose a novel overlapping generations model with three social classes: the rich, the middle class, and the poor. We show that there is an initial phase in which no social class invests in higher education of their children, such that the evolution of inequality is entirely driven by the level of bequests. Once a certain income threshold is surpassed, the rich start to invest in higher education of their children, which partially crowds out bequests and thereby reduces inequality in the short run. The better educated children of the rich, however, enjoy higher incomes and inequality starts to rise again. As time goes by, the middle class and eventually also the poor start to invest in higher education, but now the increase in inequality is driven by different levels of education. As the economy proceeds toward a balanced growth path, educational differences between social groups and thus inequality decline again. We argue that (1) the proposed mechanism has the potential to explain the Ushaped evolution of inequality in rich countries in the second half of the 20th Century and the first decade of the 21st Century and (2) the currently observed increase in inequality is rather a transitory phenomenon.

WP 02/2016   Ivan Frankovic, Michael Kuhn, Stefan Wrzaczek: Medical Care within an OLG economy with realistic demography show more


WP 02/2016

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Ivan Frankovic
Michael Kuhn
Stefan Wrzaczek

We study the role of health care within a continuous time economy of overlapping generations subject to endogenous mortality. The economy consists of two sectors: final goods production and a health care sector, selling medical services to individuals. Individuals demand health care with a view to lowering mortality over their life-cycle. We derive the age-specific individual demand for health care based on the value of life as well as the resulting aggregate demand for health care across the population. We then characterize the general equilibrium allocation of this economy, providing both an analytical and a numerical representation. We study the allocational impact of a medical innovation both in the presence and absence of anticipation; and a temporary baby boom. We place particular emphasis on disentangling general equilibrium from partial equilibrium impacts and identifying the relevant transmission channels.

WP 01/2016   Franz X. Hof and Klaus Prettner: The Quest for Status and R&D-based Growth show more


WP 01/2016

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Franz X. Hof and Klaus Prettner

We analyze the impact of status preferences on technological progress and long-run economic growth. For this purpose, we extend the standard relative wealth approach by allowing the two components of the representative household's wealth, physical capital and shares, to differ with respect to their status relevance. Relative wealth preferences imply that the effective rate of return of saving in the form of a particular asset is the sum of its market rate of return and its status-related extra return. It is shown that the status relevance of shares is of crucial importance: First, an increase in the intensity of the quest for status raises the steady-state economic growth rate only if the status-related extra return of shares is strictly positive. Second, for any given degree of status consciousness, the long-run economic growth rate depends positively on the relative status relevance of shares. Third, while in the standard model the decentralized long-run economic growth rate is less than its socially optimal counterpart, the wealth externalities in our model counterbalance this distortion to some extent provided that shares matter for status.

WP 04/2015   Johanna Grames, Alexia Prskawetz, Dieter Grass, Alberto Viglione, Günter Blöschl: Modelling the interaction between flooding events and economic growth show more


WP 04/2015

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Johanna Grames
Alexia Prskawetz
Dieter Grass
Alberto Viglione
Günter Blöschl

Recently socio-hydrology models have been proposed to analyse the interplay of community risk-coping culture, flooding damage and economic growth. These models descriptively explain the feedbacks between socio-economic development and natural disasters such as floods. Complementary to these descriptive models, we develop a dynamic optimization model, where the inter-temporal decision of an economic agent interacts with the hydrological system. We assume a standard macro-economic growth model where agents derive utility from consumption and output depends on physical capital that can be accumulated through investment. To this framework we add the occurrence of flooding events which will destroy part of the capital. We identify two specific periodic long term solutions and denote them rich and poor economies. Whereas rich economies can afford to invest in flood defence and therefore avoid flood damage and develop high living standards, poor economies prefer consumption instead of investing in flood defence capital and end up facing flood damages every time the water level rises. Nevertheless, they manage to sustain at least a low level of physical capital. We identify optimal investment strategies and compare simulations with more frequent and more intense high water level events.

WP 03/2015   Bernhard Skritek, Jesus Crespo Cuaresma, Arkadii V. Kryazhimskii, Klaus Prettner, Alexia Prskawetz, and Elena Rovenskaya: Revisiting the Lucas Model show more


WP 03/2015

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Bernhard Skritek
Jesus Crespo Cuaresma
Arkadii V. Kryazhimskii
Klaus Prettner
Alexia Prskawetz
and Elena Rovenskaya

We revisit the influential economic growth model by Lucas (1988) ["On the mechanics of economic development." Journal of Monetary Economics, 22(1):3-42], assuming that households optimally allocate consumption and education over the life-cycle given an exogenous interest rate and exogenous wages. We show that in such a partial equilibrium setting, the original two-state (physical capital and human capital) optimization problem can be decomposed into two single-state optimal control models. This transformation allows us to rigorously prove the existence of a singular control describing the allocation of education time along a balanced growth path. We derive a constructive condition for a singular control to exist and show that under this condition infinitely many singular controls are optimal in the individual household problem. In contrast to the original general equilibrium framework in which an agent always chooses part-time education and part-time work, in our framework such an agent might find it optimal to allocate her whole available time to education at the beginning of her life and to focus on labor supply only when she is older.

WP 02/2015   David E. Bloom, Michael Kuhn and Klaus Prettner: The contribution of female health to economic development show more


WP 02/2015

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David E. Bloom
Michael Kuhn and Klaus Prettner

We analyze the economic consequences for less developed countries of investing in female health. In so doing we introduce a novel micro-founded dynamic general equilibrium framework in which parents trade off the number of children against investments in their education and in which we allow for health-related gender differences in productivity. We show that better female health speeds up the demographic transition and thereby the take-off toward sustained economic growth. By contrast, male health improvements delay the transition and the take-off because ceteris paribus they raise fertility. According to our results, investing in female health is therefore an important lever for development policies. However, and without having to assume anti-female bias, we also show that households prefer male health improvements over female health improvements because they imply a larger static utility gain. This highlights the existence of a dynamic trade-off between the short-run interests of households and long-run development goals. Our numerical analysis shows that even small changes in female health can have a strong impact on the transition process to a higher income level in the long run. Our results are robust with regard to a number of extensions, most notably endogenous investment in health care.

WP 01/2015   Michael Kuhn and Klaus Prettner: Population structure and consumption growth: Evidence from National Transfer Accounts show more


WP 01/2015

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Michael Kuhn and Klaus Prettner

We assess the impact of population structure on economic growth. Following recent research, we focus on the generational turnover as a key driver of consumption growth. We characterize the impact of the average birth and death rates on the generational turnover, depending on the age-profile of consumption and on the extent of annuity market imperfection. Using recent data from the National Transfer Accounts on consumption profiles for a number of countries, we assess in a comparative way the sign and magnitude of generational turnover and its impact on consumption growth. We find considerable cross-country variation and trace it back to differences in demographic rates and in the consumption structure.

WP 02/2014   Elke Loichinger, Bernhard Hammer, Alexia Prskawetz, Michael Freiberger and Joze Sambt: Economic Dependency Ratios: Present Situation and Future Scenarios show more


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Elke Loichinger
Bernhard Hammer
Alexia Prskawetz
Michael Freiberger and Joze Sambt

In this paper we compare several types of economic dependency ratios for a selection of European countries. These dependency ratios take not only into account the demographic structure of the population, but also the differences in age-specific economic behaviour such as labour market activity, income and consumption. In simulations where we combine patterns of age-specific economic behaviour with population projections, we show that in all countries population ageing would lead to a pronounced increase in dependency ratios if present age-specific patterns were not to change. Our analysis of cross-country differences in economic dependency demonstrates that these di erences are driven by both differences in age-speciific economic behaviour and in the age composition of the populations. In addition, the specific definitions of the ratios will result in different interpretations of dependency. The choice which dependency ratio to use in a specific policy context is determined by the nature of the question to be answered. The comparison of our various dependency ratios across countries gives insights into which strategies might be effective in mitigating the expected increase in economic dependency due to demographic change.

WP 01/2014   Agnieszka Gehringer and Klaus Prettner: Longevity and technological change show more


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Agnieszka Gehringer and Klaus Prettner

We analyze the impact of increasing longevity on technological progress within an R&D-based endogenous growth framework and test the model's implications on OECD data from 1960 to 2011. The central hypothesis derived in the theoretical part is that | by raising the incentives of households to invest in physical capital and in R&D | decreasing mortality positively impacts upon technological progress and thereby also on productivity growth. The empirical results clearly confirm the theoretical prediction which implies that the ongoing demographic changes in industrialized economies are not necessarily detrimental to economic prosperity, at least as far as technological progress and productivity growth are concerned.

WP 02/2013   Michael Kuhn, Robert Nuscheler: Saving the public from the private? Incentives and outcomes in dual practice show more


WP 02/2013

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Michael Kuhn
Robert Nuscheler

We consider a setting of dual practice, where a physician offers free public treatment and, if allowed, a private treatment for which patients have to pay out of pocket. Private treatment is superior in terms of health outcomes but more costly and time intensive. For the latter reason it generates waiting costs. As patients differ in their propensity to benefit from private treatment and in their costs of waiting for treatment, we study the physician’s incentives to supply private care and to allocate waiting time to public and private sectors and contrast it with the first-best allocation. The physician shifts waiting costs to public patients in order to increase the willingness-to-pay for private treatment. While this waiting time allocation turns out to be socially optimal, the resulting positive network effect leads to an over-provision of private care if and only if waiting costs are sufficiently high. A second-best allocation arises when the health authority selects physician reimbursement in the public segment but has no control over private provision. Depending on the welfare weight the health authority attaches to physician profits a ban of dual practice may improve on the second-best allocation. Due to patient heterogeneity, such a ban would affect patients differently.

WP 01/2013   Bernhard Mahlberg, Inga Freund, Jesús Crespo Cuaresma, Alexia Prskawetz: The Age-Productivity Pattern: Do Location and Sector Affiliation Matter? show more


WP 01/2013

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Bernhard Mahlberg
Inga Freund
Jesús Crespo Cuaresma
Alexia Prskawetz

Current demographic developments are expected to challenge the sustainability of welfare in industrialised economies. Persistent low fertility levels and increasing survival rates to older age imply a decreasing share of younger individuals within the labour force that needs to support an increasing share of old people out of the labour force. We use matched employer-employee data for Austria at the firm level in order to study the link between the age structure and labour productivity and concentrate on the role played by regional location and sector affiliation. We apply multilevel estimation techniques in order to account for systematic variation of the age-productivity pattern with regard to these two dimensions. Our results indicate that the age-productivity pattern differs significantly across regions and across sectors and that sectoral differences are the more sizable source of heterogeneity in the link between the age structure and firm productivity.

WP 05/2012   Bernhard Hammer, Alexia Prskawetz: The Public Reallocation of Resources across Age: A Comparison of Austria and Sweden show more


WP 05/2012

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Bernhard Hammer
Alexia Prskawetz

There is a strong interdependency between public transfers and the shape of the economic life-cycle. Austria and Sweden are very similar economies in terms of production, income and the size of the public sector. There are however remarkable differences in the design of public transfers, their distribution over age-groups and consequently in the shape of the average economic life-cycle: One of the most remarkable differences is the earlier labour force exit age in Austria. The period of active labour force participation is consequently more compressed in Austria, leading to higher contributions to the public transfer system for the age-groups 20-45 and to a higher share of public transfers directed to the elderly. Using economic dependency ratios we show that the sustainability of the public transfer system depends less on its size than on its design: The Swedish system collects the contributions from a wider range of age-groups, transfers a smaller share to the elderly and provides more support to younger generations, supporting them to invest in own children. These characteristics have a positive effect on the sustainability of the Swedish system: Although in Sweden there is a larger share of the population in the age-group 60+, the total economic dependency of the elderly is lower.

WP 04/2012   Miguel Sanchez-Romero, Joze Sambt, Alexia Prskawetz: Quantifying the role of alternative pension reforms on the Austrian economy show more


WP 04/2012

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Miguel Sanchez-Romero
Joze Sambt
Alexia Prskawetz

This paper investigates the role of recent pension reforms for the development of the social security system and economic growth in Austria. We use a computable general equilibrium model that is built up of overlapping generations that differ by their household structure, longevity, educational attainment, and capital accumulation. Each household optimally decides over its consumption paths, work effort, and retirement age according to the life-cycle theory of labor, while they face survival risk. We find that the pension reforms implemented from 2000 to 2004, although in the correct direction, are not sufficient to solve the labor market distortion caused by the Austrian PAYG pension system. Using alternative policy options, our simulations indicate that a change to a notional defined contribution system and an increase in the educational distribution of the work force would increase the incentive for later retirement ages and thereby increase labor supply and economic growth.

WP 03/2012   Michael Kuhn, Klaus Prettner: Growth and welfare effects of health care in knowledge based economies show more


WP 03/2012

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Michael Kuhn
Klaus Prettner

We study the effects of a labor-intensive health care sector within an R&D-driven growth model with overlapping generations. Health care increases longevity and labor participation/productivity. We examine under which conditions expanding health care enhances growth and welfare. Even if the provision of health care diverts labor from productive activities, it may still fuel R&D and economic growth if the additional wealth that comes with expanding longevity translates into a more capital/machine-intensive final goods production and, thereby, raises the return to developing new machines. We establish mild conditions under which an expansion of health care beyond the growth-maximizing level is Pareto-improving.

WP 02/2012   Klaus Prettner: Public education and economic prosperity: semi-endogenous growth revisited show more


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Klaus Prettner

We introduce publicly funded education into R&D-based economic growth theory. Our framework allows us to i) explicitly describe a realistic process of human capital accumulation within these types of growth models, ii) reconcile semi-endogenous growth theory with the empirical evidence on the relationship between economic development and population growth, and iii) revise the policy invariance result of semi-endogenous growth frameworks. In particular, we show that the model supports a negative association between economic growth and population growth if the education sector is well developed and the population growth rate is low, that is, for modern industrialized countries. Furthermore, within our framework, changes in public educational investments have the potential to affect the long-run balanced growth rate.

WP 01/2012   Michael Kuhn, Stefan Wrzaczek, Alexia Prskawetz, Gustav Feichtinger: Optimal choice of health and retirement in a life-cycle model show more


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Michael Kuhn
Stefan Wrzaczek
Alexia Prskawetz
Gustav Feichtinger

We examine within a life-cycle set-up the simultaneous choice of health care and retirement (together with consumption), when health care contributes to both a reduction in mortality and in morbidity. Health tends to impact on retirement via morbidity, determining the disutility of work, and through longevity, determining the need to accumulate retirement wealth. In contrast, the age of retirement drives health through changes in the value of survival and the value of morbidity reductions. We apply our model to analyse the effects of moral hazard in the annuity market: While moral hazard always induces excessive health investments and an excessive duration of working life it also triggers an excessive level of consumption if the impact of health on the disutility of work is sufficiently large. We examine a transfer scheme and mandatory retirement as policies to curtail moral hazard. Numerical analysis illustrates the working of our model.

WP 04/2011   Holger Strulik, Klaus Prettner, Alexia Prskawetz: R&D-based Growth in the Post-modern Era show more


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Holger Strulik
Klaus Prettner
Alexia Prskawetz

Conventional R&D-based growth theory suggests that productivity growth is positively correlated with population size or population growth, an implication which is hard to see in the data. Here we integrate R&D-based growth into a uni ed growth setup with micro-founded fertility and schooling behavior. We then show how a Beckerian child quality-quantity trade-o explains why higher growth of productivity and income per capita are associated with lower population growth. The medium-run prospects for future economic growth { when fertility is going to be below replacement level in virtually all developed countries { are thus much better than predicted by conventional R&D-based growth theory.

WP 03/2011   Bernhard Mahlberg, Inga Freund, Jesús Crespo Cuaresma, Alexia Prskawetz: Ageing, Productivity and Wages in Austria show more


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Bernhard Mahlberg
Inga Freund
Jesús Crespo Cuaresma
Alexia Prskawetz

The current demographic developments and their consequences for workforce ageing challenge the sustainability of intergenerational transfers and economic growth. A shrinking share of the young workforce will have to support a growing share of elderly, non-working people. Therefore, the productivity of the workforce is central to a sustainable economic future. In order to study the relation between the age structure of employees and labour productivity at the firm level, we use a new matched employer-employee panel data set for Austrian firms spanning the period 2002- 2005. These data allow us to account simultaneously for socio-demographic characteristics of the employees as well as firm heterogeneity to explain labour productivity. Our results clearly show that the age-productivity as well as age-wage profile have a strong industry-specific component. In the service sector, an ageing workforce does not necessarily imply a negative productivity effect. Moreover, we cannot find any evidence for an overpayment of elderly employees.

WP 02/2011   Inga Freund, Bernhard Mahlberg, Alexia Prskawetz: Ageing, Productivity and Wages in Austria: evidence from a matched employer-employee data set at the sector level show more


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Inga Freund
Bernhard Mahlberg
Alexia Prskawetz

In this paper we analyse the link between the age structure of the labour force and average labour productivity at the intermediate level of economic sectors. The analysis is based on a panel data set ranging over six years (2002-2007) and covers the sectors of mining, manufacturing and market oriented services in the Austrian economy. Our results exhibit a positive correlation of the share of older employees and productivity, while we cannot find any evidence for a significant relationship of the share of younger employees and productivity. Moreover, the estimated age-wage pattern does not hint at an over-payment of older employees.

WP 01/2011   Inga Freund, Bernhard Mahlberg, Alexia Prskawetz: A Matched Employer-Employee Panel Data Set for Austria: 2002-2005 show more


WP 01/2011

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Inga Freund
Bernhard Mahlberg
Alexia Prskawetz

Matched employer-employee (panel) data sets are gaining increasing importance in the analysis of labour markets. In collaboration with Statistics Austria we recently initiated the set up of a matched employer-employee panel data set for Austria, which covers the years 2002-2005. The aim of the paper is to introduce the data set to a broader audience. We first present the set up of the panel data, indicating in more detail the data sources and matching procedure underlying the matched employer-employee data set for Austria. In a second step we show descriptive statistics of the main variables included in our data set. These various statistics encompass three levels of analysis: the aggregate level (i.e. the entire sample), firm level and individual (employee) level.

 





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