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How Exits from the Labor Force of Death Impact Household Incomes: A Four Country Comparison of Public and Private Income Support

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Author Info

  • Richard V. Burkhauser

    (Cornell University & DIW)

  • Phil Giles

    (Statistics Canada)

  • Dean R. Lillard

    (Cornell University & DIW)

  • Johannes Schwarze

    (Otto-Friedrich-Universität Bamberg & DIW)

Abstract

Government policies attempt to mitigate the economic risks to households of major life transitions. This paper focuses on two such transitions that social security systems typically insure against—long term exits from the labor market (retirement, disability, unemployment insurance) and the death of a household head or spouse (survivor’s insurance). We examine labor force exits of men at various ages in four countries--Canada, Germany, Great Britain, and the United States—using data from the Cross-National Equivalent File, a matched longitudinal data set. We focus on how average net-of-tax household income changes in the years before and after the event. We find that when one measures the change in economic well-being following a labor market exit by the fraction of lost labor earnings replaced by social security income, the decline in the household’s economic well-being is substantially overstated. When we compare net-of-tax household income before and after a long term exit from the labor market, we find that such drops are much less than those implied by a social security replacement rate and that differences across countries in the average drop are much less than those based on a social security replacement rate. We find the same pattern when we focus on how net-of-tax household income changes in the years before and after the death of a head or spouse. Declines in net-of-tax household income following such a death are much lower than the decline implied by a replacement of the deceased person’s labor earnings and social security benefits by their household’s post-death social security income. But the size of the change in individualized net-of-tax income following the death of a head or spouse is greatly affected by assumptions used to adjust for changes in household size.

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Bibliographic Info

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp033.

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Length: 83 pages
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:mrr:papers:wp033

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References

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  1. Peter Diamond & Jonathan Gruber, 1999. "Social Security and Retirement in the United States," NBER Chapters, in: Social Security and Retirement around the World, pages 437-473 National Bureau of Economic Research, Inc.
  2. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
  3. Axel Borsch-Supan & Reinhold Schnabel, 1999. "Social Security and Retirement in Germany," NBER Chapters, in: Social Security and Retirement around the World, pages 135-180 National Bureau of Economic Research, Inc.
  4. Jonathan Gruber, 1999. "Social Security and Retirement in Canada," NBER Chapters, in: Social Security and Retirement around the World, pages 73-99 National Bureau of Economic Research, Inc.
  5. Joseph F. Quinn & Richard V. Burkhauser & Daniel A. Myers, 1990. "Passing the Torch: The Influence of Economic Incentives on Work and Retirement," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number pt, December.
  6. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  7. Robin L. Lumsdaine & Olivia S. Mitchell, . "New Developments in the Economic Analysis of Retirement," Pension Research Council Working Papers 98-8, Wharton School Pension Research Council, University of Pennsylvania.
  8. Richard V. Burkhauser & Timothy M. Smeeding & Joachim Merz, 1994. "Relative Inequality and Poverty in Germany and the United States Using Alternative Equivalence Scales," FFB-Discussionpaper 12, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
  9. Buhmann, Brigitte, et al, 1988. "Equivalence Scales, Well-Being, Inequality, and Poverty: Sensitivity Estimates across Ten Countries Using the Luxembourg Income Study (LIS) Database," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(2), pages 115-42, June.
  10. Joseph F. Quinn, 1993. "Retirement And The Labor Force Behavior Of The Elderly," Boston College Working Papers in Economics 257, Boston College Department of Economics.
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Cited by:
  1. M. Asghar Zaidi & Klaas de Vos, 2002. "Income Mobility of the Elderly in Great Britain and The Netherlands: A Comparative Investigation," Economics Series Working Papers 107, University of Oxford, Department of Economics.

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