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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.

Suggested Citation

  • Gary V. Engelhardt & Jonathan Gruber & Cynthia D. Perry, 2002. "Social Security and Elderly Living Arrangements," NBER Working Papers 8911, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8911
    Note: AG PE
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    References listed on IDEAS

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    Cited by:

    1. Eric V. Edmonds & Kristin Mammen & Douglas L. Miller, 2005. "Rearranging the Family?: Income Support and Elderly Living Arrangements in a Low-Income Country," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
    2. 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).
    3. John R. Moran & Kosali Ilayperuma Simon, 2004. "Income and the Use of Prescription Drugs by the Elderly: Evidence from the Notch Cohorts," Center for Policy Research Working Papers 66, Center for Policy Research, Maxwell School, Syracuse University.
    4. Ingrid Ellen & Brendan O’Flaherty, 2007. "Social programs and household size: evidence from New York city," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 26(4), pages 387-409, August.
    5. Cousins, Mel, 2005. "The impact of the introduction of social welfare schemes in Ireland, (1930s-1950s)," MPRA Paper 3490, University Library of Munich, Germany.
    6. Vincent Touzé, 2011. "Le financement des retraites aux États-Unis. Impact de la crise et tendances de long terme," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(3), pages 63-112.
    7. 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.
    8. Erofili Grapsa & Dorrit Posel, 2016. "Sequencing the real time of the elderly: Evidence from South Africa," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 35(25), pages 711-744, September.
    9. Steven J. Haider & Kathleen McGarry, 2005. "Recent Trends in Resource Sharing Among the Poor," NBER Working Papers 11612, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J1 - Labor and Demographic Economics - - Demographic Economics

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