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Transfers and Labor Market Behavior of the Elderly in Developing Countries: Theory and Evidence from Vietnam

Juergen Jung () and Chung Tran

No 2009-01, Working Papers from Towson University, Department of Economics

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.

Keywords: Altruism; crowding-out; social security; retirement; transfers. (search for similar items in EconPapers)
JEL-codes: H31 H55 I38 J14 J22 J28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dev, nep-hap and nep-lab
Date: 2009-09, Revised 2009-10
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http://webapps.towson.edu/cbe/economics/workingpapers/2009-01.pdf First version, 2009 (application/pdf)

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