Health Shocks and Couples’ Labor Supply Decisions
The typical family in the US is now a dual–earner couple, yet there are relatively few studies that examine the retirement decision in a household context. This paper explores how husbands’ and wives’ retirement behavior is influenced by their own financial incentives from Social Security and private pensions and by “spillover effects” from their spouses’ incentives. Spillover effects are possible due to income effects and complementarity of leisure; if significant, their omission will bias estimates of the effect of changing Social Security policy on retirement. I find that men and women are similarly responsive to their own incentives: an increase of $1,000 in the return to additional work is associated with a reduction of 0.9 percent of baseline retirement for men and 1.3 percent of baseline retirement for women. I find that men are very responsive to their wives’ financial incentives but that women are not responsive to their husbands’ incentives and present evidence to suggest that this may be due to asymmetric complementarities of leisure. Policy simulations indicate that estimates of the effect of a policy change on the probability of men working at age 65 are biased by 13 percent to 20 percent if spillover effects are omitted.