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Social Security and Elderly Living Arrangements

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  • Gary V. Engelhardt
  • Jonathan Gruber
  • Cynthia D. Perry

Abstract

One of the most important economic decisions facing the elderly, and their families, is whether to live independently. A number of previous studies suggest that widows are fairly responsive to Social Security benefits in deciding whether to live independently. But these previous studies have either generally relied on differences in benefits across families or cohorts, which are potentially correlated with other determinants of living arrangements, or have used data from the distant past. We propose a new approach that relies on the large exogenous shifts in benefits generosity for cohorts born in the 1910-1921 period, and we study the impact of this change in living arrangements in the 1980s and 1990s. In this period, benefits rose quickly, due to double-indexing of the benefit formula, and then fell dramatically, as this double-indexing was corrected over a five-year period. Using these legislative changes in benefits that the living arrangements of widows are much more sensitive to Social Security income than implied by previous studies. We also find that the living arrangements of divorcees, the fastest growing group of elderly, are even more sensitive to benefit levels. Overall, our findings suggest that living arrangements are elastically demanded by non-married elderly, privacy is a normal good, and that reductions in Social Security benefits would significantly alter the living arrangements of the elderly. Our estimates imply that a 10% cut in Social Security benefits would lead more than 600,000 independent elderly households to move into shared living arrangements.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8911.

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Date of creation: Apr 2002
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Publication status: published as Engelhardt, Gary V., Jonathan Gruber and Cynthia D. Perry. "Social Security and Elderly Living Arrangements," Journal of Human Resources, 2005, v40(2,Spring), 354-372.
Handle: RePEc:nbr:nberwo:8911

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Cited by:
  1. Eric Edmonds & Kristin Mammen & Douglas L. Miller, 2004. "Rearranging the Family? Income Support and Elderly Living Arrangements in a Low Income Country," NBER Working Papers 10306, National Bureau of Economic Research, Inc.
  2. Steven J. Haider & Kathleen McGarry, 2005. "Recent Trends in Resource Sharing Among the Poor," NBER Working Papers 11612, National Bureau of Economic Research, Inc.
  3. John R. Moran & Kosali Ilayperuma Simon, 2005. "Income and the Use of Prescription Drugs by the Elderly: Evidence from the Notch Cohorts," NBER Working Papers 11068, National Bureau of Economic Research, Inc.
  4. Ingrid Ellen & Brendan O’Flaherty, 2007. "Social programs and household size: evidence from New York city," Population Research and Policy Review, Springer, Springer, vol. 26(4), pages 387-409, August.
  5. Stephen E. Snyder & William N. Evans, 2002. "The Impact of Income on Mortality: Evidence from the Social Security Notch," NBER Working Papers 9197, National Bureau of Economic Research, Inc.
  6. Pal, Sarmistha, 2007. "Effects of Intergenerational Transfers on Elderly Coresidence with Adult Children: Evidence from Rural India," IZA Discussion Papers 2847, Institute for the Study of Labor (IZA).
  7. Cousins, Mel, 2005. "The impact of the introduction of social welfare schemes in Ireland, (1930s-1950s)," MPRA Paper 3490, University Library of Munich, Germany.

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