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Consumer Expenditures and Home Production at Retirement - New Evidence from Germany

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Listed author(s):
  • Melanie Lührmann

Abstract

This paper investigates consumer expenditures of German households pre- and post-retirement. The widely observed distinct drop in spending upon retirement entry poses an empirical puzzle since life cycle theory predicts smoothing of the marginal utility of consumption over time. As one explanation, I explore the role of home production as a substitute for consumer expenses. Taking a combined look at consumer expenditures and time use pre- and post-retirement, I find a significant drop of about 17% of pre-retirement expenses at retirement which coincides with an increase in time spent on home production of an additional 89 minutes per day, accounting for 21% of average home production. Copyright 2009 The Author. Journal Compilation Verein für Socialpolitik and Blackwell Publishing Ltd. 2009.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0475.2009.00466.x
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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 11 (2010)
Issue (Month): (05)
Pages: 225-245

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Handle: RePEc:bla:germec:v:11:y:2010:i::p:225-245
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Find related papers by JEL classification:
  • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
  • D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
  • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
  • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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  1. Axel Börsch-Supan & Barbara Berkel, 2004. "Pension Reform in Germany: The Impact on Retirement Decisions," MEA discussion paper series 04062, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  2. Axel Börsch-Supan & Reinhold Schnabel & Simone Kohnz & Giovanni Mastrobuoni, 2004. "Micro-Modeling of Retirement Decisions in Germany," NBER Chapters,in: Social Security Programs and Retirement around the World: Micro-Estimation, pages 285-344 National Bureau of Economic Research, Inc.
  3. Berkel, Barbara & Börsch-Supan, Axel, 2004. "Pension reform in Germany : the impact on retirement decisions," Papers 04-62, Sonderforschungsbreich 504.
  4. Michael Hurd & Susann Rohwedder, 2003. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," Working Papers 03-12, RAND Corporation.
  5. Mette Christensen, 2008. "Demand patterns around retirement: Evidence from Spanish panel data," The School of Economics Discussion Paper Series 0809, Economics, The University of Manchester.
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  8. Joachim Merz, 2001. "Was fehlt in der EVS ? Eine Verteilungsanalyse hoher Einkommen mit der verknüpften Einkommensteuerstatistik für Selbständige und abhängig Beschäftigte," FFB-Discussionpaper 30, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
  9. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, vol. 88(4), pages 769-788, September.
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  11. Hamermesh, Daniel S, 1984. "Consumption during Retirement: The Missing Link in the Life Cycle," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 1-7, February.
  12. Michael Hurd & Susann Rohwedder, 2005. "Changes in Consumption and Activities at Retirement," DNB Working Papers 039, Netherlands Central Bank, Research Department.
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  15. Lundberg, Shelly & Startza, Richard & Stillman, Steven, 2003. "The retirement-consumption puzzle: a marital bargaining approach," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1199-1218, May.
  16. Dilnot, Andrew & Disney, Richard & Johnson, Paul & Whitehouse, Edward, 1994. "Pensions policy in the UK: An economic analysis," MPRA Paper 10478, University Library of Munich, Germany.
  17. Schwerdt, Guido, 2005. "Why does consumption fall at retirement? Evidence from Germany," Economics Letters, Elsevier, vol. 89(3), pages 300-305, December.
  18. Sarah Smith, 2006. "The Retirement-Consumption Puzzle and Involuntary Early Retirement: Evidence from the British Household Panel Survey," Economic Journal, Royal Economic Society, vol. 116(510), pages 130-148, 03.
  19. Raffaelle Miniaci & Chiara Monfardini & Guglielmo Weber, 2003. "Is there a retirement consumption puzzle in Italy?," IFS Working Papers W03/14, Institute for Fiscal Studies.
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Cited by:

  1. Velarde, Melanie & Herrmann, Roland, 2014. "Time use for consumption and household production of food: is there a retirement-consumption puzzle in Germany?," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182829, European Association of Agricultural Economists.
  2. Peine & Ingo Rollwagen & Louis Neven, 2012. "Exploring new patterns of user involvement – baby boomers and the future of consumption," Innovation Studies Utrecht (ISU) working paper series 12-09, Utrecht University, Department of Innovation Studies, revised Sep 2012.
  3. Martin Browning & Thomas F. Crossley & Melanie Lührmann, 2016. "Durable Purchases over the Later Life Cycle," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(2), pages 145-169, 04.
  4. Ciani, Emanuele, 2016. "Retirement, pension eligibility and home production," Labour Economics, Elsevier, vol. 38(C), pages 106-120.
  5. Peine, Alexander & Rollwagen, Ingo & Neven, Louis, 2014. "The rise of the “innosumer†—Rethinking older technology users," Technological Forecasting and Social Change, Elsevier, vol. 82(C), pages 199-214.
  6. Nivorozhkina, Ludmila & Nivorozhkin, Anton & Abazieva, Kamilla, 2010. "Drop in consumption associated with retirement. The regression discontinuity design approach," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 19(3), pages 112-126.

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