Social Security and Elderly Living Arrangements

32 Pages Posted: 25 Apr 2002 Last revised: 4 May 2002

See all articles by Gary V. Engelhardt

Gary V. Engelhardt

Syracuse University - Center for Policy Research; Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Jonathan Gruber

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Cynthia D. Perry

Harvard University - Scholars in Health Policy Research Program

Date Written: April 2002

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

Engelhardt, Gary V. and Gruber, Jonathan and Perry, Cynthia D., Social Security and Elderly Living Arrangements (April 2002). NBER Working Paper No. w8911, Available at SSRN: https://ssrn.com/abstract=309600

Gary V. Engelhardt

Syracuse University - Center for Policy Research ( email )

426 Eggers Hall
Syracuse, NY 13244
United States
315-443-4598 (Phone)
315-443-1081 (Fax)

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jonathan Gruber (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Room E52-355
Cambridge, MA 02142
United States
617-253-8892 (Phone)
617-253-1330 (Fax)

HOME PAGE: http://web.mit.edu/gruberj/www/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Cynthia D. Perry

Harvard University - Scholars in Health Policy Research Program ( email )

Cambridge, MA
United States
617-496-6085 (Phone)
617-496-1636 (Fax)

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