Estimating the Family Labor Supply Functions Derived from the Stone-Geary Utility Function

The Stone-Geary utility function defined over an index of goods, the leisure of the husband, and the leisure of the wife is used to derive the earnings functions of the husband and the wife. The parameters of the utility function are estimated from the parameters of the earnings functions in a way that accounts for a number of theoretical and statistical problems. The effect of family composition on utility is estimated by specifying and estimating adult equivalents in consumption and leisure of various categories of children. On the statistical side the following difficulties are all considered: nonlinear constraints across equations, endogenous marginal income tax rates, variations in tastes in the population, heteroscedasticity, and truncation of the left-hand variable. The data come from the 1967 Survey of Economic Opportunity. The results are generally good and support the view that the effects of family composition on utility can be estimated from behavioral relationships. Alternative results that ignore the complicated statistical problems are presented; they imply that the statistical problems are empirically important and should not be ignored.

The Joint Retirement Decision of Husbands and Wives

The objective of the paper is to find empirically whether husbands and wives tend to retire at the same time, and to give an explanation of the findings. Similarity of retirement dates could be caused by similarity of tastes (assortative mating), by economic variables, or by the complimentarity of leisure. Each explanation would have different implications for the response of retirement to policy changes. Both simple data analysis and economic models of the age of retirement point to coordination of retirement dates: husbands and wives tend to retire at the same time. According to the results, very little of the coordination is due to economic variables, and simple cross-tabulations rule out assortative mating as an important explanation. This leaves complimentarity of leisure. Because of data limitations, this conclusion is, however, mainly qualitative. The data set is the Mew Beneficiary Survey.

The Effects of Demographic Trends on Consumption, Saving and Government Expenditures in the U.S.

This paper reviews and analyzes forecasts of the Social Security trust funds, government spending, medical expenditures, and other elements of aggregate income and spending. According to these forecasts, the aging of the U.S. population will require some increases in taxes to support the retirement system. It should reduce the saving rate, and the composition of output will change. By themselves, these changes seem manageable. However, the direct effects of aging are completely dominated by the projected increases in medical expenditures. Although medical costs interact with aging, most of the increases are not related to aging. Even the moderately high forecast of medical spending will require that all increases in output between now and 2020 be devoted to the consumption of medical services, allowing no increase in any other component of consumption.

Savings and Bequests

Empirical studies have indicated that the elderly seem to accumulate wealth after retirement, and that the desire to leave bequests is an important determinent of saving behavior, both kinds of results have cast doubt on the validity of the life cycle hypothesis of consumption. In the first part of this paper, a model of bequests is specified, and the implications for consumption and wealth trajectories are derived. The main result is that, even with a bequest motive, consumption generally decreases with age after retirement, and that wealth will also decrease for all but wealthy households. In the empirical part of the paper, wealth changes of retired households are reported over 10 years of panel data. Contrary to many results from cross-section data, the elderly do dissave: over 10 years the wealth of the elderly in the sample decreases by about 27 real. A test for a bequest motive is proposed. There is no evidence whatsoever for abequest motive.

The Effect of Social Security on Early Retirement

Our purpose in the present study is to analyze a new and rich body of data on the elderly to study the supply side of the effect of social security on the early retirement decision. Toward this end, section 2 presents a brief description of some previous studies of retirement behavior. While each in its own way has been suggestive, each also (including one by one of the current authors) has its own set of problems. Section 3 details the analytical framework of the present study. We propose several types of data from which one could obtain complementary information on the labor supply behavior of the elderly, and three approaches to analyzing a given body of data. We then propose a new way of estimating retirement behavior. Section 4 discusses the data used in this study: the Social Security Administration's Retirement History Survey. Section 5 reports our empirical results, estimates of probability of early retirement and early semiretirement equations. Section 6 concludes with a brief discussion of some of the implications of the study and suggestions for future research.

The Effect of Social Security on Retirement in the Early 1970s

Improved understanding of retirement behavior is a key to better understanding of many important economic problems. In as close as we can come to a general "social experiment," real Social Security benefits were increased substantially for the period we study the retirement patterns of a cohort of white males: 28% on average between 1970 and 1972, with the maximum benefit increased by over 50% in real terms between 1968 and 1976. Other important structural changes in the method of computing benefits were also made. Hence, we have extremely detailed longitudinal data on a cohort of people spanning the years of most active retirement behavior (ages 58-67) over a period of abrupt change in the economic incentives surrounding their retirement . We have analyzed these data in a variety of ways to examine the impact of the changes in Social Security, as well as other factors, on retirement probabilities. The most simple to the most sophisticated analyses reveal the same set of inferences: 1. The acceleration in the decline in the labor force participation of elderly men over the period 1969-73 was primarily due to the large increase in real Social Security benefits; our probability equations estimate effects of changes in real benefits combined with the actual changes to predict declines in participation rates virtually identical to actual observed changes from independent data. 2. Social Security wealth interacts with other assets. A substantial fraction of the elderly appear to have few other assets and this group shows a markedly larger propensity to retire early, e.g., at age 62 when Social Security benefits become available. We find strong evidence of this liquidity constraint effect for an important subgroup of the elderly. 3. The magnitude of the induced retirement effect is large enough that if it is ignored in estimating the direct fiscal implications of major changes in benefit provisions, these may be substantially underestimated . 4. We interpret our results in the historical context of a particular cohort undergoing a major, unanticipated transfer of wealth via larger real benefits. We make no attempt to distinguish these from the long- run effects if the system were to remain unchanged for many years or if future changes were readily predictable.