“I take thee as my lawfully wedded husband and my social
insurance for old age” makes for an awkward wedding vow, but a plausible one. Petra Persson, Ph.D. Candidate at Columbia University and a WAPPP fellow, examined the effects of social insurance policies on the marriage market. Through econometric modeling, she demonstrated the effect of a specific policy
change in Sweden in 1989 on the decision of couples to marry.
The idea is that when Sweden changed its survivor benefits
policy in 1989, there was an announcement that unmarried couples who had a
child could get married by the end of the year and still qualify for the “old”
benefits. The new benefits were significantly lower – a one-time payment to the
surviving spouse, versus an annuity to the surviving wife under the old system.
Lo and behold, a record number of couples got married in the last quarter of
1989. There were also differences in divorce rates and other indications that
the marriage market responded to the change in social insurance policy.
In the case of Sweden, the reform was not intended to
incentivize marriage, but the fact that there was a marriage market response
has implications for when it’s optimal to separate social insurance from marriage.
Ms. Persson argues, convincingly and quantitatively, that the society’s gender
wage gap is the key determinant of whether it’s optimal to separate social
insurance from marriage.
In a hypothetical country with large gender gaps and a
traditional structure where everyone marries for life and husbands are the
breadwinners, there are economic gains from tying benefits to marriage. The
social insurance helps the surviving woman who cannot
provide for herself. In the opposite hypothetical
scenario, where not everyone marries but everyone works, there are no gains
from tying benefits to marriage. In fact there are losses when money is
transferred to a survivor who is self-sufficient without it. In a realistic
society where there is an intermediate gender wage gap, a social planner faces
the trade-off between protecting the elderly women from poverty and distorting
the marriage market.
To illustrate the trade-off, consider that the reforms in
Sweden took place for budgetary reasons, but were couched in gender equality
rhetoric – under the new system, it didn't matter whether a man or woman was
the survivor, he or she would get the same one-time benefit. Sweden in the 1980’s,
of course, still had its share of traditional marriages and women who did not
work. Since women typically live longer, the removal of the widow annuity resulted
in an increase in number of destitute old women. The government then had to
step in again and provide welfare payments to these women – essentially creating
a safety net program where the social insurance proved insufficient.
On the one hand, providing a safety net for the elderly is
more equitable – a social safety net does not distinguish whether the man or
woman was ever married. Why should we reward marriage, distorting the marriage market?
On the other hand, social insurance is something every working individual pays
into to tap in old age; so if this person dies before claiming the benefit, it
is plausible that his or her family deserves some share of that money.
These
are the fundamental questions of social policy design. As evidenced by the
Swedish example, the policies that flow from these questions have practical
financial planning implications for couples contemplating taking the plunge…because
nothing says “I love you,” like a conversation about social insurance.
Anya Malkov is an MPP candidate at the Harvard Kennedy School, a WAPPP Cultural Bridge Fellow, and an alumna of From Harvard Square to the Oval Office.
Anya Malkov is an MPP candidate at the Harvard Kennedy School, a WAPPP Cultural Bridge Fellow, and an alumna of From Harvard Square to the Oval Office.
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