Working Papers

Kyu Park and Michael Sherris

Abstract: With increasing numbers of Australians in or entering retirement, the modelling of functional disability and health status is critical to the insuring and financing of retirement risks for both governments and individuals. The multi-state modelling of these risks underlie projections of the population by functional disability status, the estimation of healthy life expectancy, the sustainable financing of public aged care and innovations in private long-term care insurance. Developing a model for the Australian population is challenging because of the lack of longitudinal health and mortality data for older Australians. We use the cross-sectional data in the Survey of Disability, Ageing and Carers for years 1998, 2003, 2009, 2012, 2015 and 2018, providing prevalence of functional disability and illness across 20 years, to estimate a multi-state transitions model that best explain the observed changes of prevalence in Australia. We develop and estimate for the first time an Australian model for transitions between five states (healthy, disabled but not ill, ill but not disabled, disabled and ill, and dead) using age, sex and trend factors for those aged 60 or greater. Functional disability is defined by autonomy of activities of daily living. Illness is defined by chronic illness conditions including heart problems, diabetes, lung disease, and stroke. Model estimation is done numerically. Using the fitted model, we estimate yearly transition probabilities, life expectancy of retirees and projected population distributions by functional disability and health states. We also provide a comparison of the results with previous studies.

Keywords: functional disability, activities of daily living, multiple state model, cross-sectional data, life expectancy, long-term care insurance

Lingfeng Lyu

Abstract: This paper presents a tri-level hierarchical approach to house price modelling at the postcode level, which is considered the most granular geographical scale, incorporating macroeconomic influences from the national level and integrating data from the largest sub-state level (SA4). By employing a Risk Premium - Principal Component Analysis (RP-PCA) for SA4-level risk factors and combining these with national-level risk factors, a vector autoregressive (VAR) model is developed. This geographically conditional multi-factor model with a hierarchical structure offers enhanced short-term prediction accuracy while maintaining long-term forecasting capabilities. The model’s predictive accuracy is further enhanced by introducing an empirical copula to describe the dependence structure of one-step residuals across various suburbs. This methodology grants a dynamic and granular view of housing price trends in Australia. Key determinants like interest rate shifts, GDP growth, and exchange rate variances play a crucial role, particularly in urban areas in metropolitan cities. The analysis of economic and demographic factors on the SA4 level indicates that elements such as home debt increments, wage fluctuations, and population shifts are pivotal in shaping housing prices, underscoring the significance of a granular regional analysis.

Keywords: House price modelling, Hierarchical framework, Macroeconomic variables, Risk Premium - Principal Component Analysis (RP-PCA)

Ricky Kanabar, Satu Nivalainen and Noora Järnefelt

Abstract: Using rich Finnish population level registers, we examine the impact of fusing a flexible early retirement pathway with a more stringent pathway, without changing eligibility conditions, so- called ‘relabelling’, on individual application behaviour. Our findings show that among affected cohorts the likelihood of applying for (successfully claiming) disability-related early retirement declined by 1.8 (1.5) percentage points equivalent to a relative drop of approximately 37% (39%) following the reform. Individuals with below tertiary level education and stronger lifetime labour market attachment exhibit a stronger behavioural response to the reform. We find tentative evidence of programme substitution to early retirement pathways designed to keep individuals in the labour market albeit on a part time basis. Our findings suggest that social norms and lack of awareness associated with early retirement pathways can strongly influence application behaviour even when eligibility conditions remain unchanged, offering policymakers novel ways to extend working lives.

Keywords: Retirement, disability, pensions, Finland, regression discontinuity.