Should you save more now, or postpone retirement to enjoy a better standard of living?


Delaying retirement by 3-6 months has the same impact on post-retirement standard of living as saving an additional one percentage point of labour earnings for 30 years, a new National Bureau of Economic Research (NBER) research paper by Gila Bronshtein, an associate at Cornerstone Research, and co-authors shows. The relative power of saving more is even lower if the decision to increase saving is made later in the work life. For instance, increasing retirement saving by one percentage point 10 years before retirement has the same impact on the retirement standard of living as working a single month longer. Delaying retirement enables workers to commence social security payments later, leading to higher payments. Delayed withdrawal increases benefits from the compounding effect, and also means additional contributions for retirement savings.

Despite concerns over risks to China’s financial system, a financial crisis is unlikely to unfold in the near future, a research paper by Zheng Michael Song, professor of economics at the Chinese University of Hong Kong, and Wei Xiong, professor of finance and economics at Princeton University, argues. The authors note various concerns about the country’s financial sector—rising debt levels and house prices, the 2015 stock market crash, tepid market performance, and the sudden devaluation of the yuan in 2016—and trace these problems to the developments that unfolded since China’s economic transition in the 1970s. While economic liberalization led to a booming private sector, the state also minimized its role with significant budget cuts. However, the 2008 financial crisis saw an unravelling of such measures. The system of duel-track reforms was compromised as the government focused on boosting investment through a stimulus plan. While this may not lead to an implosion in the short run, the misallocation of capital over the past few years will act as a drag on China’s long-run growth, the authors argue.

Academics earn 15 percentage points less than doctorate degree holders in other professions, according to an NBER paper by Daniel S. Hamermesh, professor of economics at Barnard College. Hamermesh examined data from a US monthly household survey covering the period 2012-16, and compared academics with those holding advanced professional degrees (doctorate degrees). There was no significant difference in terms of average working hours, but academics did much more of their work on weekends. They worked 50% more over the weekend than other workers with advanced degrees. Academics were also 50% more likely to spread their work throughout the day, working in the evening or at night. Smoother work hours accounted for at least one-third of the earnings differential, according to Hamermesh.

Analysing swings in prices of different assets, Alberto Martin and Jaume Ventura of the Centre for Research in International Economics, Barcelona, argue that underlying fundamentals are not the only drivers of asset prices. Random shifts in market sentiment lead to bubbles, which are not entirely inconsistent with individual rational expectations, according to the researchers. They argue that rather than eliminating bubbles, monetary policy should simply go against the wind, puncturing bubbles when they are too big and blowing them up when they are too small.

After raising questions about the World Bank’s Doing Business rankings, the renowned economist Paul Romer has resigned from his position. But Romer’s critique has led others to look critically at the ease of doing business rankings. Regardless of whether the rankings were rigged to favour one political regime in Chile—as Romer had initially seemed to hint— the rankings have several problems, wrote Justin Sandefur and Divyanshi Wadhwa of the Center for Global Development in a blog post. The authors point out that the rankings are too volatile as the goalposts keep shifting, rendering the rankings useless. Recalculating the rankings based on the World Bank’s own data, and using a fixed set of countries and fixed methodology, the authors re-estimate the rankings to note several big changes.

India’s 30-rung jump to the 100th position in the ease of doing business attracted a lot of attention when the latest rankings were announced last year. But the authors’ recalculations show that India’s rankings would decline to 147 if a fixed methodology is applied.livemint