Working Paper: NBER ID: w14667
Authors: Michael Baker; Jonathan Gruber; Kevin S. Milligan
Abstract: A large international literature has documented the labor market distortions associated with social security benefits for near-retirees. In this paper, we investigate the 'other side' of social security programs, seeking to document improvements in wellbeing arising from the provision of public pensions. To the extent households adjust their savings and employment behavior to account for enhanced retirement benefits, the positive impact of the benefits may be crowded out. We proceed by using the large variation across birth cohorts in income security entitlements in Canada that arise from reforms to the programs over the past 35 years. This variation allows us to explore the effects of benefits on elderly well-being while controlling for other factors that affect well-being over time and by age. We examine measures of income, consumption, poverty, and happiness. For income, we find large increases in income corresponding to retirement benefit increases, suggesting little crowd out. Consumption also shows increases, although smaller in magnitude than for income. We find larger retirement benefits diminish income poverty rates, but have no discernable impact on consumption poverty measures. This could indicate smoothing of consumption through savings or other mechanisms. Finally, our limited happiness measures show no definitive effect.
Keywords: retirement benefits; elderly wellbeing; income security; Canada
JEL Codes: H55; J14; J26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased retirement benefits (H55) | Limited evidence of significant impact on reported happiness levels among the elderly (I31) |
| Increased retirement benefits (H55) | Decrease in reports of unhappiness (I31) |
| Increased retirement benefits (H55) | Significant increases in income for the elderly (J26) |
| Larger retirement benefits (H55) | Reduction in income poverty rates among the elderly (I32) |
| Increased retirement benefits (H55) | No statistically significant effect on absolute poverty measures (I32) |