Transfers and labor market behavior of the elderly in developing countries: theory and evidence from Vietnam

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Transfers and Labor Market Behavior of the Elderly in Developing Countries Theory and Evidence from Vietnam.pdf (1.14 MB)

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https://ideas.repec.org/p/tow/wpaper/2009-01.html

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http://hdl.handle.net/11603/10802

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Towson University Department of Economics Working Paper Series

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Author/Creator ORCID

Date

2009-08-28

Type of Work

working papers
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application/pdf

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Towson University. Department of Economics

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Citation of Original Publication

Juergen Jung & Chung Tran, 2009. "Transfers and Labor Market Behavior of the Elderly in Developing Countries: Theory and Evidence from Vietnam," Working Papers 2009-01, Towson University, Department of Economics, revised Oct 2009.

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Subjects

Altruism
Crowding out (Economics)
Social security
Retirement
Transfers
Vietnam

Abstract

In this paper we argue that the strategic interaction between the labor supply decision of the elderly and private transfers from their children lowers the opportunity cost of leisure of the elderly. This in turn magnifies the crowding-out effect of public pensions on the labor supply of the elderly. We show that this mechanism has implications for evaluating the crowding-out effect of public pensions in developing countries. That is, a misspecified econometric model that does not control for the endogeneity of private transfers leads to a biased estimate of the crowding-out effect of public pensions. Using data from a household survey in Vietnam we find that the effect of public pensions on the probability of retirement is 2.5 times larger when explicitly accounting for the interaction between private transfers and the labor supply decision of elderly individuals.