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

86 Pages Posted: 5 Feb 2008

See all articles by Richard V. Burkhauser

Richard V. Burkhauser

Cornell University - Department of Policy Analysis & Management (PAM); University of Melbourne, Melbourne Institute

Dean Lillard

Cornell University - Department of Policy Analysis & Management (PAM)

Johannes Schwarze

University of Bamberg; German Institute for Economic Research (DIW Berlin); IZA Institute of Labor Economics

Date Written: July 2002

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.

Suggested Citation

Burkhauser, Richard V. and Giles, Philip and Lillard, Dean and Schwarze, Johannes, How Exits from the Labor Force or Death Impact Household Incomes: A Four Country Comparison of Public and Private Income Support (July 2002). Michigan Retirement Research Center Research Paper No. WP 2002-033, Available at SSRN: https://ssrn.com/abstract=1089056 or http://dx.doi.org/10.2139/ssrn.1089056

Richard V. Burkhauser (Contact Author)

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

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University of Melbourne, Melbourne Institute ( email )

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Australia

Dean Lillard

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States

Johannes Schwarze

University of Bamberg ( email )

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Bamberg 96045
Germany
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+49 951 863 5569 (Fax)

German Institute for Economic Research (DIW Berlin)

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Germany

IZA Institute of Labor Economics

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Germany

No contact information is available for Philip Giles

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