February 19, 2014 | News

Higher pensions and more money for health care spending add to life expectancy

Higher pensions and higher investments in health care both have a positive effect on life expectancy. © Mamushka / photocase.com

MPIDR researchers Fanny Kluge and Tobias Vogt have been awarded a paper price by the Journal of Economics of Ageing. The article looks into the question of whether public spending on pension and health care increases life expectancy.

Do people live longer when they receive higher pensions? Do people get older when the  health care system has more money to spend? In other words, does life expectancy increase when the State spends more money on its citizen? Two MPIDR-Postdocs of the Laboratory of Survival and Longevity, Fanny Kluge and Tobias Vogt, explored these questions and published their findings in their article ”Can public spending reduce mortality disparities? Findings from East Germany after reunification“. The article has now been awarded a paper price by the Journal of Economics of Ageing.

The two scientists analyzed data from East and West Germany. “One can see the division and reunification of Germany as a large natural experiment. A single population was separated into two and then they lived under very different social, economic, and political conditions for the next four decades to come,“ says Fanny Kluge.

These differences were very wide. At the beginning of the 1970s, for example, the average East German pension income was a mere 26% of the average labor income, whereas the status-preserving West German pension system granted beneficiaries 43 percent of their gross wages. This compares to 43% in West Germany. To give another example, in the 1980s, 3%  of the total state expenditure in East Germany was spent on health care, whereas the figures stood at 9% in the West.

These differences waned following unification as people living in the former East German states  started to benefit from the social security system that benefited from the adoption to the West German social security system and the average pension level started to rapidly assimilate to western German standards, mainly because eastern German pensioners generally had longer working histories. As for eastern German women, their average pension entitlements rapidly reached levels that were even higher than those for their female counterparts in the West, mainly because Eastern Germany had female labor-force participation rates that were much higher, even among mothers.

The two researchers found out that higher pensions and higher investments in health care both have a positive effect on life expectancy. On the whole, every Euro spent on pension and health care  added on average three hours of life expectancy a year. The effect was largest when the money went into the eastern German healthcare system.

In sum, the study shows that improvements in health care provision and higher pensions levels substantially contributed to life expectancy convergence.  “But we should be cautious when looking at the data,“ says co-author Tobias Vogt. “Much has changed after the Fall of the Wall. Pollution levels have declined, nutrition and health behavior has improved, and the living standard generally has risen.“