The economics of aging.

• Author: Wise, David A.

Members of the NBER's Program on the Economics of Aging currently are doing research on: the housing and living arrangements, health care, and financial status of the elderly; U.S. demographic trends and their economic consequences; labor market and retirement behavior, including saving for retirement; and international comparisons of these issues. Much of this research has been published in a series of University of Chicago Press volumes for the NBER, the first of which appeared in 1989. A fourth volume is scheduled for publication in 1993. Many of our current research efforts are summarized here; substantial related work on health care is now underway, and will be summarized in a future issue of the NBER Reporter.

Demographics and Housing

Daniel L. McFadden has been considering the relationship between demographics, the housing market, and the welfare of the elderly.(1) His work emphasizes the distribution of homeownership capital across past and future generations of U.S. households. This issue has particular importance for older people, because a large percentage of the wealth of the majority of elderly households is in the form of housing, and because much of the value of this housing traditionally has resulted from capital appreciation. McFadden's results suggest that people born between 1880 and 1910 achieved a real rate of return on their housing investment of about 3 percent per year. He projects that real housing returns will decline to about 1 percent per year for people born around 1915, zero for people born about 1930, negative 1 percent for people born around 1945, and negative 3 percent for people born between 1960 and 1990. Despite the significant variation in capital appreciation across generations, it turns out that real income growth over time has a far larger effect on the welfare of different generations than does housing appreciation.

A related paper by Louise M. Sheiner and David N. Weil examines the degree to which the elderly reduce homeownership as they age.(2) This study finds that average levels of homeownership and housing wealth decline significantly in the last few years of life. In addition, the value of houses sold by elderly people tends not to remain in their portfolios after the house is sold. About 42 percent of households leave behind a house when the last member dies, and the average value of houses left is about $38,000.

Nursing Home Utilization

Alan M. Garber and Thomas E. MaCurdy have been studying the long-term care of the elderly. In a recent paper on nursing...