SEDAP (Social and Economic Dimensions of an Aging Population) is a multidisciplinary research program studying a wide range of aging-related issues and is funded by the Social Sciences and Humanities Research Council of Canada. SEDAP is centred at McMaster University and involves researchers from that institution as well as from the University of British Columbia, Université de Montréal, Queen's and the University of Toronto.

I. SEDAP Research Papers

SEDAP Research Papers are available on the SEDAP website at no cost. Paper copies may be obtained for a nominal charge. Please contact Mrs. Gail Kalika, Department of Economics, KTH-426, McMaster University, Hamilton, Ont., Canada, L8S 4M4.

Brief descriptions follow of the most recently released papers in the SEDAP series.

SEDAP Research Paper No. 99:

The Evolution of High Incomes in Canada, 1920-2000

Emmanuel Saez (Economics, University of California- Berkeley) and Michael R. Veall (Economics, McMaster University)

This study uses Canadian tax data to examine the income of the top 10% of income earners over the course of the twentieth century. The authors consider the share of income earned (that is, the fraction of all income reported by Canadian taxfilers that was earned by the top group) as well as the composition of this group's income (that is, what fraction is from wage and salary earnings, from returns on capital, and so forth). The findings for Canada are compared with the experience of other modern countries, primarily the United States.

The study finds that both Canada and the United States experienced a sharp drop in top shares (that is, incomes across all income earners became more equal) during World War II. However, during the last two decades of the twentieth century, the top groups have regained their pre-war levels. As well, both countries have experienced the same shift in the composition of the top incomes (although the change is less dramatic in Canada). Until the 1960s, the very top incomes in both countries were composed primarily of capital income; however, the dramatic surge in top income shares in the last 20 years is due to increases in wages and salaries.

The increase in top wage shares in the last 20 years in Canada and the United States is not found in other modern economies such as France or Japan. The increase in Canada is more concentrated in the very top groups than is the case in the United States and is much less pronounced for francophones in Quebec.

SEDAP Research Paper No. 100:

Macroeconomic Implications of Population Aging and Public Pensions

Malick Souare (Economics, McMaster University)

This theoretical paper uses a general equilibrium model, calibrated to represent the Canadian economy in 1999-2000, to examine some economic effects of population aging. Canada is modeled as a small open economy with overlapping generations and life-cycle features. Further, there is a set of households that are liquidity constrained and cannot afford to save; involuntary unemployment emerges for a subset of these liquidity constrained households under asymmetric information in the labour market. The model also features a Pay-As-You-Go public pension as well as employment insurance.

The author presents his primary findings under two scenarios: in the first case, population aging in Canada is not accompanied by population aging in the rest of the world, and thus interest rates remain unchanged; in the second case, the possibility is considered that world-wide population aging will lead to a fall in world interest rates. The author finds that, under different assumptions, the scenario of unchanged world interest rates may overestimate or underestimate the results found using lower world interest rates. He concludes that the failure to take the global dimensions of population aging into account when formulating policy responses may lead to inaccurate policy prescriptions.

SEDAP Research Paper No. 101:

How Do Parents Affect the Life Chances of Their Children as Adults? An Idiosyncratic Review

John Ermisch (ISER, University of Essex)

The low fertility associated with an older society means that the economic support of a larger retired population falls on a smaller working population. In these circumstances, productivity-enhancing investment in today's children becomes even more important for the support of the retired population. In addition, because incomes in old age are strongly linked with earnings during a person's working life, parental influences on the life chances of their adult children will eventually affect the latter's economic welfare in their retirement. This paper presents a wide-ranging discussion of the literature on how parents affect the life chances of their children, from infancy through adulthood.

SEDAP Research Paper No. 102:

Population Change and Economic Growth: The Long-Term Outlook

Frank T. Denton and Byron G. Spencer (Economics, McMaster University)

The authors begin with a simple accounting identity in which the rate of growth of real Gross Domestic Product (GDP) is expressed as the sum of the rates of growth of the population, the proportion of the population from which the labour force is drawn, the labour force participation rate, the employment rate and the aggregate labour productivity ratio. Historical Statistics Canada data on GDP, population and the labour force are used, with "splicing" done between old and new series where required to obtain data series back to 1951. The authors also make adjustments to include data for the armed forces and for the Territories in these series.

Real GDP increased at a rate of about 4.4 per cent per year in the 1950s, 5.3 per cent in the 1960s, 4.0 per cent in the 1970s, 2.3 per cent in the 1980s and 3.2 per cent in the 1990s. The authors' analysis shows that labour force and productivity growth were major contributors to this pattern. Although productivity gains were modest in the 1970s, baby boomers entering the labour force in large numbers at this time combined with increases in female labour force participation rates helped keep the GDP growth rate high. By the 1980s, however, the baby bust effects on the labour market were starting to be felt. The 1990s saw increases in the rate of productivity growth and some reversal of the downward trend in older male labour force participation rates.

The authors then present a number of forecast scenarios, with varying assumptions regarding fertility rates, mortality rates, immigration rates, labour force participation rates, unemployment rates and rates of labour force productivity. They conclude from their various forecasts that the Canadian economy can be expected to cope with the "elderly boom" in coming years.

SEDAP Research Paper No. 103:

Use of Medicines by Community Dwelling Elderly in Ontario

Peri J. Ballantyne (Pharmacy, University of Toronto), Joan A. Marshman (Pharmacy, University of Toronto), Philippa J. Clarke (Institute for Human Development, University of Toronto) and J. Charles Victor (Public Health Science, University of Toronto)

This paper uses data from the National Population Health Survey for 1996-97 to examine the use of prescription and non-prescription drugs and natural health products by community dwelling Ontarians age 65 and over. Respondents were asked about their use of medicines and health products in the two days prior to the interview; their responses were classified by the authors as prescription, non-prescription or natural health products.

About one-quarter of all respondents reported taking no medications in the two days prior to the interview. This figure was slightly higher for the age 65-69 group and lower for the 80+ group. Men were more likely than women to report using no medications. The use of non-prescription medicines was reported more frequently than the use of prescription medicines (55.7 per cent as compared to 47.9 per cent). The use of natural health products was reported by less than 10 per cent of the sample.

The authors note in particular the reported usage of prescription medicine by 47.9 per cent of the respondents and compare this figure with other sources reporting that approximately 90 per cent of Ontario's elderly received prescription medications each year from 1993 to 1997. They propose a number of explanations for this seeming discrepancy, including the limitations of self-reported data, the different time frames for the two data sources (two days vs. one year), or a high rate of non-compliance in the use of prescription medicines among seniors.

SEDAP Research Paper No. 104:

The Economic Legacy of Divorced and Separated Women in Old Age

Lynn McDonald (Social Work, University of Toronto) and A. Leslie Robb (Economics, McMaster University)

The authors of this paper compare the levels and sources of income separately for widowed, separated, divorced and never married women aged 65 and older. The data on which their analyses are based are annual cross- sections from Statistics Canada's Survey of Labour and Income Dynamics from 1993 to 1999. The authors note that there is no reliable measure of asset stocks available in this survey.

Descriptive analysis shows that the never-married women in the sample have the highest after-tax incomes among all unattached women in every year of the survey (married women are excluded from the analysis). In 1993, separated women have the next-highest after-tax incomes, followed by widows, followed by divorced women. In 1999, divorcees have the second- highest incomes, followed by widows, followed by separated women. Results from regression analysis incorporating variables such as level of education, region of residence and age show little difference from the descriptive results of the effect of marital status on income.

SEDAP Research Paper No. 105:

National Catastrophic Drug Insurance Revisited: Who Would Benefit from Senator Kirby's Recommendations?

Thomas F. Crossley (Economics, McMaster University), Paul V. Grootendorst (Pharmacy, University of Toronto and Michael R. Veall (Economics, McMaster University)

Recently, the Standing Senate Committee on Social Affairs, Science and Technology issued a report (popularly known as the Kirby report) which recommended the introduction of a federally-funded catastrophic drug insurance program for Canadians. The Kirby plan would see private and provincial drug plans capping household prescription drug expenses at the lower of 3 per cent of total household income or $1500 per household member, after which point federal assistance would apply. Using data from Statistics Canada's 2000 Survey of Household Spending, the authors investigate the effects of implementing the Kirby plan.

They find that overall, 5.8 per cent of Canadian residential households would qualify for some assistance under the proposed program, with substantial variation by province of residence and household type. Eligibility rates range from 3.4 per cent in Ontario and 3.8 per cent in B.C. to 13 per cent in P.E.I. and 15 per cent in Saskatchewan. Eligibility rates are much higher for low income households and for senior households than for all other households. Most eligible households would qualify for coverage by virtue of the income rule as opposed to the per household member rule. Half of the qualifying households would receive transfers of $330 or less and three-quarters would receive less than $821; the top 1 per cent would receive an amount in excess of $5450.

Assuming that total drug expenditures as well as provincial assistance plans remain unchanged, the authors estimate that the implementation of the Kirby plan for the estimated 11,362,290 households in Canada during the year 2000 would require federal expenditures of $462 million (the Kirby report estimate is $500 million). Some offset of this expenditure by the federal government would be due to the fact that less income tax relief for eligible medical expenses would be required.

SEDAP Research Paper No. 106:

Wages in Canada: SCF, SLID, LFS and the Skill Premium

A. L. Robb (Economics, McMaster University), L. Magee (Economics, McMaster University) and J. B. Burbidge (Economics, University of Waterloo)

To study wage trends in Canada, the best available source of data has been the Survey of Consumer Finances (SCF). This survey was discontinued after 1997, however, and Statistics Canada currently publishes two alternative micro-data sources: the Survey of Labour and Income Dynamics (SLID) and the Labour Force Survey (LFS). The purpose of this paper is to examine the current surveys with a view to indicating whether either can be used to provide a continuous wage series when combined with the SCF and, in particular, whether either can be used with the SCF to study the wage premium to a university education.

The SCF collected data on annual earnings as well as on the extent of work, allowing the calculation of weekly wage indexes. The SLID collects wage information, but only for a maximum of six jobs in a year; thus SLID data on annual income must be used to calculate a weekly wage index. Some respondents in the LFS answer earnings questions in terms of an hourly rate of pay but for other respondents, other time bases may be used (e.g., weekly, monthly, annually). Thus there is the problem in the LFS of the reporting of overtime earnings, which would most likely not be included in an hourly rate but may be included in reportings on a broader time frame basis. Several other differences across the three surveys are noted by the authors, including differences in questions regarding the education level of respondents.

The authors find that neither the SLID nor the LFS is an entirely satisfactory extension of the SCF in all respects. Regarding the investigation of the skill premium, which is the focus of the analysis here, using the SLID to extend the SCF appears to be not unreasonable. However, the authors warn that one would probably want to be cautious in merging the LFS with the SCF in the case of females for analysis of the skill premium.

SEDAP Research Paper No. 107:

A Synthetic Cohort Analysis of Canadian Housing Careers

Thomas F. Crossley (Economics, McMaster University) and Yuri Ostrovsky (Statistics Canada)

Statistics Canada estimates that a household's principal residence accounts for 38 per cent of a household's total assets; thus for many households, housing is an important form of saving. Basic life-cycle models suggest that wealth should be accumulated during the working life and run down in later life, and thus the life-cycle model would predict that housing wealth should be "dis-saved" in later life. This study analyses the patterns of ownership, housing equity, residential mobility and tenure transitions in housing data and compares those patterns with the predictions of simple life- cycle models.

The authors combine microdata from multiple years of three different Statistics Canada cross-sectional surveys: the Family Expenditure Survey (FAMEX), the Household Income, Facilities and Equipment Survey (HIFE) and the Survey of Household Spending (SHS). The resulting quasi-panel consists of eighteen annual surveys and spans a thirty-year period, and is made possible by the fact that all of these surveys are based on the same sampling frame. As changes in housing arrangements may be contemporaneous with household formation and dissolution, the authors follow cohorts of women across ages and attribute to each woman the housing of her household.

The study's findings are only mildly supportive of the predictions of simple life-cycle models. Housing ownership does decline at older ages, but not steeply. Average housing equity declines as well, but more slowly than ownership, indicating that, conditional on ownership, housing equity is accumulated well past the age of retirement. The study also finds that following cohorts of women leads to very different age profiles than following cohorts of couples. This suggests that many changes in housing arrangements coincide with household dissolution (perhaps including widowhood or the institutionalization of one partner). The authors also note important differences between cross-sectional and quasi-panel profiles of housing arrangements and discuss the effects of changes in cohort composition, particularly due to increasing rates of immigration, on age profiles.

SEDAP Research Paper No. 108:

The Policy Challenges of Population Ageing

Alan Walker (Social Policy, University of Sheffield)

The author begins his paper by questioning how population aging has been made into a crisis in the Western world and become the subject of distortions and unrealistic predictions. He argues that in many cases, other factors such as the growing insecurity of labour markets and the decline in the full-time manual male worker may be a more relevant focus for policy considerations.

The paper then outlines five major challenges for policy makers and discusses current policy and proposed policy in many countries, particularly in the European Union. The author notes that the main concern of policy makers and the media is the growth of pension costs and their fiscal implications, and describes measures taken thus far to reduce future pension costs as rather modest adaptations to existing systems, such as raising the number of contribution years or indexing benefits by prices rather than wages.

The need for policy-oriented research on aging is emphasized. The author argues that much of the public debate about societal aging and the "burden" of old age lacks sound research evidence and, as a result, is often exaggerated or misleading. He calls for researchers to improve the communication of their findings to the policy community and to overcome the tendency for research to be narrowly nationalistic. He concludes that population aging requires not panic reactions but fundamental adjustments to the ways in which older people are regarded within both families and formal institutions.