IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Explaining the wealth holdings of different cohorts: Productivity growth and Social Security

  • Kapteyn, Arie
  • Alessie, Rob
  • Lusardi, Annamaria

It is well-known that individuals born in different periods of time (cohorts)exhibit different wealth accumulation paths. While previous studies have usedcohort dummies to proxy for this fact, research in this area suffers from aserious identification problem, i.e., how to disentangle age, time, and cohorteffects from a simple cross-section or a time series of cross-sections.In this paper we propose to go beyond the simple use of cohort dummies to capture the differences inwealth accumulation across individuals born in different time periods. We introduce two indicators of theeconomic conditions under which households accumulate wealth. The first one represents productivitydifferences across cohorts: the aggregate level of GNP per capita when the head of the household entered thelabor market. The second measure summarizes the changes in Social Security during the head ofhousehold?s working life. The use of these indicators also gets around the identification problem.We estimate the model using panel data from the Netherlands. This is a country whose historicalconditions are ideal to study the effects of productivity growth and Social Security. The Netherlandsexperienced a steady growth after World War II. At the same time, it also built up a very extensive welfaresystem. Our empirical findings show that productivity growth goes a long way in explaining differences inincome across cohorts. Productivity growth and Social Security can explain most, if not all, of thedifferences in wealth holdings of different cohorts. In comparison with the cohorts that lived without SocialSecurity for a portion of their working life, the cohorts that had Social Security throughout their working lifehave less than half the accumulation rate of older cohorts.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 49 (2005)
Issue (Month): 5 (July)
Pages: 1361-1391

in new window

Handle: RePEc:eee:eecrev:v:49:y:2005:i:5:p:1361-1391
Contact details of provider: Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Alessie, R. & Lusardi, A. & Kapteyn, A., 1995. "Saving and Wealth Holdings of the Elderly," Papers 9593, Tilburg - Center for Economic Research.
  2. Orazio Attanasio, 1993. "A cohort analysis of saving behaviour by US households," IFS Working Papers W93/04, Institute for Fiscal Studies.
  3. Modigliani, Franco, 1985. "Life Cycle, Individual Thrift and the Wealth of Nations," Nobel Prize in Economics documents 1985-1, Nobel Prize Committee.
  4. Viard, Alan D, 1993. "The Productivity Slowdown and the Savings Shortfall: A Challenge to the Permanent Income Hypothesis," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 549-63, October.
  5. Angus Deaton & Christina H. Paxson, 1993. "Saving, Growth, and Aging in Taiwan," NBER Working Papers 4330, National Bureau of Economic Research, Inc.
  6. Hurd, Michael D, 1990. "Research on the Elderly: Economic Status, Retirement, and Consumption and Saving," Journal of Economic Literature, American Economic Association, vol. 28(2), pages 565-637, June.
  7. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 3-95, Wharton School Rodney L. White Center for Financial Research.
  8. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-43, May.
  9. Verbeek, M.J.C.M. & Nijman, T.E., 1990. "Testing for selectivity bias in panel data models," Discussion Paper 1990-18, Tilburg University, Center for Economic Research.
  10. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
  11. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 437-67, June.
  12. Avery, Robert B & Kennickell, Arthur B, 1991. "Household Saving in the U.S," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 37(4), pages 409-32, December.
  13. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc.
    • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  14. Alessie, Rob & Lusardi, Annamaria & Aldershof, Trea, 1997. "Income and Wealth over the Life Cycle: Evidence from Panel Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(1), pages 1-32, March.
  15. Orazio P. Attanasio & Hilary Williamson Hoynes, 2000. "Differential Mortality and Wealth Accumulation," Journal of Human Resources, University of Wisconsin Press, vol. 35(1), pages 1-29.
  16. Attanasio, Orazio P., 1993. "An analysis of life-cycle accumulation of financial assets," Ricerche Economiche, Elsevier, vol. 47(4), pages 323-354, December.
  17. Michael D. Hurd, 1999. "Mortality Risk and Consumption by Couples," Working Papers 99-03, RAND Corporation Publications Department.
  18. Jappelli, Tullio, 1995. "The Age-Wealth Profile and the Life-Cycle Hypothesis: A Cohort Analysis with a Time Series of Cross-Sections of Italian Households," CEPR Discussion Papers 1251, C.E.P.R. Discussion Papers.
  19. Avery, Robert B & Elliehausen, Gregory E & Kennickell, Arthur B, 1988. "Measuring Wealth with Survey Data: An Evaluation of the 1983 Survey of Consumer Finances," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(4), pages 339-69, December.
  20. Diamond, P. A. & Hausman, J. A., 1984. "Individual retirement and savings behavior," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 81-114.
  21. Shorrocks, A F, 1975. "The Age-Wealth Relationship: A Cross-Section and Cohort Analysis," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 155-63, May.
  22. Erik Hurst & Ming Ching Luoh & Frank P. Stafford, 1998. "The Wealth Dynamics of American Families, 1984-94," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 267-338.
  23. Nijman, T.E. & Verbeek, M.J.C.M., 1992. "Testing for selectivity in panel data models," Other publications TiSEM 7ec34a6c-1d84-4052-971c-d, Tilburg University, School of Economics and Management.
  24. David A. Wise & Steven F. Venti, 1993. "The Wealth of Cohorts: Retirement Saving and the Changing Assets of Older Americans," NBER Working Papers 4600, National Bureau of Economic Research, Inc.
  25. Moulton, Brent R & Randolph, William C, 1989. "Alternative Tests of the Error Components Model," Econometrica, Econometric Society, vol. 57(3), pages 685-93, May.
  26. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
  27. Feldstein, Martin, 1996. "Social Security and Saving: New Time Series Evidence," National Tax Journal, National Tax Association, vol. 49(2), pages 151-64, June.
  28. Feldstein, Martin S, 1974. "Social Security, Induced Retirement, and Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 905-26, Sept./Oct.
  29. Davies, J B, 1979. "On the Size Distribution of Wealth in Canada," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 25(3), pages 237-59, September.
  30. Orazio P. Attanasio, 1998. "Cohort Analysis of Saving Behavior by U.S. Households," Journal of Human Resources, University of Wisconsin Press, vol. 33(3), pages 575-609.
  31. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  32. Yoram Weiss & Lee A. Lillard, 1976. "Experience, Vintage and Time Effects in the Growth of Earnings: AmericanScientists, 1960-1970," NBER Working Papers 0138, National Bureau of Economic Research, Inc.
  33. Kapteyn, Arie & de Vos, Klaas, 1998. "Social Security and Labor-Force Participation in the Netherlands," American Economic Review, American Economic Association, vol. 88(2), pages 164-67, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:49:y:2005:i:5:p:1361-1391. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.