Push or Pull: Changes in the Relative Risk and Growth of Entrepreneurship Among Older Households.

Purpose of the study: Amid insufficient retirement savings and the growing need to work longer, it is important to understand why self-employment, especially entrepreneurship, has grown among older households. Older households may have been pushed into entrepreneurship by the growing risks of wage-and-salary employment as wages and jobs have become less stable. Alternatively, older households may have been pulled into entrepreneurship as the associated risks have declined, for instance, due to greater opportunities to diversify income away from risky business income. We examine the economic causes of the rise in entrepreneurship among older households. Design and Methods: We use summary statistics and multinomial logit regressions to analyze the link between economic pressures in wage-and-salary employment, financial strength of entrepreneurship, and the presence and change of entrepreneurship among older households-aged 50 years or older. We use household data from the Federal Reserve's Survey of Consumer Finances from 1989 to 2013. Results: We find little support for the claim that increased economic pressures are correlated with rising entrepreneurship. Instead, our results suggest that the growth of older entrepreneurship is coincident with increasing access to dividend and interest income. We also find some evidence that access to Social Security and other annuity benefits increases the likelihood of self-employment. Implications: Entrepreneurship among older households increasingly correlates with income diversification. Policymakers interested in encouraging more entrepreneurship among older households could consider increased access to income diversification through social insurance.

Boon or bane: 401(k) loans and employee contributions.

Economic and behavioral theories arrive at different conclusions about the effect of being allowed to borrow from one's defined-contribution (DC) retirement plan on people's contributions to DC plans. Traditional life-cycle models unambiguously suggest that the borrowing option makes people better off than not being able to borrow. Households consequently contribute more to their DC plans than they would absent the borrowing option. Previous research finds that the ability to borrow from a DC plan increases contemporaneous contributions, consistent with traditional models. Behavioral finance, in contrast, suggests that some workers may operate with nonlinear time discounting. They plan on saving more in the future but change their mind and save less than initially planned as time passes. These workers may enjoy higher lifetime utility if they have no loan option because DC plans serve as commitment devices for retirement saving. The money cannot be used prior to retirement. Absent this commitment device, contributions may be lower for some households than would be the case without a DC loan option. We study DC plan contributions for households with heterogeneous preferences about discounting. We separate households into those that demonstrate inconsistent (or paradoxical) borrowing behavior, which may reflect nonlinear time discounting, and those with more consistent borrowing behavior. We find that a DC loan option raises current savings, but does so more for households with consistent borrowing behavior than for those with inconsistent borrowing behavior.

Combat exposure and mental health: the long-term effects among US Vietnam and Gulf War veterans.

Using a random sample of more than 4000 veterans, we test the effects of combat exposure on mental health. We focus on two cohorts of veterans: those who served in Vietnam (1964-1975) and the Gulf War (1990-1991). Combat exposure differed between these groups in intensity, duration and elapsed time since exposure. We find that combat exposure generally, and exposure to dead, dying, or wounded people, specifically, is a significant predictor of mental health declines as measured by an individual's Mental Component Summary score. Under our general specifications, the negative effects of combat on mental health were larger for Gulf war veterans than for Vietnam veterans as of 2001. These effects persist after controlling for demographic characteristics, insurance coverage, income and assets. Using discrete factor, nonparametric maximum likelihood (DFML) estimation we controlled for unobserved heterogeneity as well as the factors above. In the DFML specifications we find a negative impact of exposure to dead, wounded or dying people for both Gulf and Vietnam veterans, but find no statistically significant effect for combat exposure overall for Vietnam veterans as of 2001. Based on our Gulf war parameters, we estimate that the costs of mental health declines to be between $87 and $318 per year for each soldier with combat service and exposure to dead, dying and wounded people.

Prelude to a RIF: older workers, part-time hours, and unemployment.

Since the beginning of the most recent recession in December 2007, involuntary part-time employment (part-time for economic reasons) in the United States has increased from 4.2 million workers to 9.1 million, more than doubling. In this paper, we examine whether such increases in involuntary part-time employment have helped combat unemployment in the past or placed a disproportionate burden on older workers. Using Current Population Survey (outgoing rotation group) data from 1983 to 2002, we find that increases in involuntary part-time work in an industry raise the industry unemployment rate. Furthermore, the connection between rising rates of involuntary part-time work and unemployment is stronger among older workers than among younger workers. We conclude that reducing work hours through the use of part-time work does not ameliorate the effects of recessions on workers. Rather, it is a harbinger of unemployment, especially among those older than 55.

What happens to defined contribution accounts when labor markets and financial markets move together?

The relationship among earnings, savings, and retirement is well known; however, the linkage between labor market outcomes and financial market performance is generally unacknowledged. We examine the implications of the link between labor markets and financial markets for workers who save money in individual retirement accounts. Specifically, differences in labor market outcomes across groups may imply differences in the timing of investments, which may reduce savings over time for these groups compared to their counterparts. Using monthly data from the Current Population Survey (1979-2002), we generate hypothetical investment portfolios using stock and bond indices. We exploit differences across demographic groups in unemployment and wage growth and use these differences to examine each group's investment outcomes. We then disaggregate the total effects into short-term and long-term components. We find some evidence of short-term market timing effects on investment, but we find much larger long-term effects for some groups. Our findings suggest that, for many people, the retirement savings losses associated with the timing of markets are similar to the costs of annuitizing savings upon retirement. The differences are especially pronounced by education and gender.

A prescription for more retirement income security: retiree health insurance coverage in an era of declining access to employer-sponsored insurance.

As health care costs have been rising, especially for prescription drugs, employers have curtailed access to employer-sponsored retiree health insurance, especially for future retirees. This paper studies the question whether declining access has already translated into measurable loss of coverage for retirees. Based on data from the Current Population Survey and the Medical Expenditures Panel Survey, we find that retirees have lost health insurance and prescription drug coverage since 1996. The declines are especially pronounced for men before age 65 and for all Medicare-eligible retirees between the ages of 65 and 74. Our results also suggest that coverage will decline in the future.