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Social Insurance and the Family

Paper Session

Saturday, Jan. 7, 2017 1:00 PM – 3:00 PM

Hyatt Regency Chicago, Field
Hosted By: Econometric Society
  • Chair: David Autor, Massachusetts Institute of Technology

Disability Receipt, Consumption Insurance, and Family Labor Supply

David Autor
,
Massachusetts Institute of Technology
Andreas Ravndal Kostol
,
Statistics Norway
Magne Mogstad
,
University of Chicago

Abstract

While a mature literature finds that Disability Insurance (DI) receipt discourages work, the welfare implications of these findings depend on two rarely studied economic quantities: the full cost of DI allowances to taxpayers, summing over DI transfer payments, benefit substitution to or from other transfer programs, and induced changes in tax receipts; and the value that individuals and families place on receiving benefits in the event of disability. We comprehensively assess these missing margins in the context of Norway’s DI system, drawing on two strengths of the Norwegian environment. First, Norwegian register data allow us to characterize the household impacts and fiscal costs of disability receipt by linking employment, taxation, benefits receipt, and assets at the person and household level. Second, random assignment of DI applicants to Norwegian judges who differ systematically in their leniency allows us to recover the causal effects of DI allowance on individuals at the margin of program entry. Accounting for the total effect of DI allowances on both household labor supply and net payments across all public transfer programs substantially alters our picture of the consumption benefits and fiscal costs of disability receipt. While DI denial causes a significant drop in household income and consumption on average, it has little impact on income or consumption of married applicants; spousal earnings and benefit substitution entirely offset the loss in DI benefit payments. To develop the welfare implications of these findings, we estimate a structural model of household labor supply that translates employment decisions of both spouses into revealed preferences for leisure and consumption. We find that household valuation of receipt of DI benefits is considerably greater for single and unmarried individuals than for married couples, suggesting that it might be efficient to lower replacement rates or impose stricter screening on married applicants.

Long-Term Care Insurance and the Family

Corina Mommaerts
,
Yale University

Abstract

I examine whether informal care by family members explains the limited demand for long-term care insurance. Motivated by evidence that the availability of potential informal caregivers is correlated with lower insurance demand and that informal caregivers substitute for formal care, I estimate a dynamic model of long-term care decisions between an elderly parent and her adult child. The availability of informal care lowers the demand for insurance by 14 percentage points overall. An insurance policy that compensates informal care can generate substantial increases in insurance demand and family welfare, and decreases in Medicaid spending.

Family Labor Supply Responses to Severe Health Shocks

Itzik Fadlon
,
University of California-San Diego
Torben Heien Nielsen
,
University of Copenhagen

Abstract

We study how household labor supply responds to severe health shocks by leveraging long panels of administrative data on health and labor market outcomes of more than half a million households. To identify the causal effects of adverse shocks, we develop a novel general research design that relies on the timing of a shock and can be applied to other important economic settings. Using this design, we provide new evidence on individuals' labor supply responses to fatal and non-fatal spousal health shocks. We find that fatal health shocks lead to an immediate increase in the surviving spouses’ labor supply and that this effect is entirely driven by families for whom the shock induces significant income losses. Notably, widows---who experience large income losses when their husbands die---increase their labor force participation by more than 11%, while widowers---who are significantly more financially stable---decrease their labor supply. In contrast, we find that non-fatal health shocks---specifically, heart attacks or strokes---have no economically significant effects on spousal labor supply, consistent with the adequate insurance coverage of their associated income losses in our setting. Our findings suggest efficient ways for targeting government transfers through social insurance against family health shocks.

Marriage, Social Insurance and Labor Supply

Alessandra Voena
,
University of Chicago
Hamish Low
,
University of Cambridge
Costas Meghir
,
Yale University
Luigi Pistaferri
,
Stanford University

Abstract

This paper develops a dynamic model of marriage, labor supply, welfare participation, savings and divorce under limited commitment and uses it to understand the impact of welfare reforms, particularly the time-limited eligibility, as in the TANF program. In the model, welfare programs can affect whether marriage and divorce take place, the extent to which people work as single or as married individuals, as well as the allocation of resources within marriage. The model thus provides a framework for estimating not only the short-term effects of welfare reforms on labor supply, but also the extent to which welfare benefits affect family formation and the way that transfers are allocated within the family. This is particularly important because many of these benefits are ultimately designed to support the well-being of mothers and children. The limited commitment framework in our model allows us to capture the effects on existing marriages as well as marriages that will form after the reform has taken place, offering a better understanding of transitional impacts as well as longer run effects. Using variation provided by the introduction of time limits in welfare benefits eligibility following the Personal Responsibility and Work Opportunity Act of 1996 (welfare reform) and data from the Survey of Income and Program Participation between 1985 and 2011, we provide reduced form evidence of the importance of these reforms on a number of outcomes relevant to our model. We then estimate the parameters of the model using the same source of data.
JEL Classifications
  • J0 - General