How Exits from the Labor Force or Death Impact Household Incomes: A Four Country Comparison of Public and Private Income Support
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.
Burkhauser, Richard V.; Giles, Philip; Lillard, Dean R.; and Schwarze, Johanne. “Until Death Do us Part: An Analysis of the Economic Well-Being of Widows in Four Countries.” Journal of Gerontology, 60B, no.5, (September 2005): S238-S246.
Burkhauser, Richard V.; Giles, Philip; Lillard, Dean R.; and Schwarze, Johanne. “Changes in the Economic Well-Being of Widows Following the Death of Their Husband: A Four Country Comparison.” Schmollers Jahrbuck: Journal of Applied Social Studies 123 no.1 (2003): 151-162. Reprinted in German in Martin Heidenreich, Hans-W. Micklitz, Andreas Oehler, Hans Rattinger and Johannes Schwarze (eds.), Europa nach der Osterweiterung: Europaforschung an der Universität Bamberg, Kulturverlag Kadmos: Berlin (2005): 142-153.
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- UM00-10: The Role of Social Security Transfer Programs in Protecting Older People Transitioning into Retirement and Widowhood: A Cross-National Perspective
Paper IDWP 2002-033