THE RETURN TO WORK AND WOMEN’S EMPLOYMENT DECISIONS

"Using the Health and Retirement Study (HRS), I find evidence that the returns to additional work beyond mid-life are greater for married women than for married men. The potential gain in Social Security wealth alone is enough to place married women on nearly equal footing with married men in terms of Social Security wealth at age 70."

That is quite a surprise. The study gives this reason:

"Overall, the gender gap in individual SSW would narrow to such a degree across cohorts that continued work to age 70 would place married women on near equal footing with married men, at least in terms of SSW. The equivalence might seem surprising given married women earn less on average than married men. But the Social Security benefit formula features a progressive replacement rate structure, and thus married women, at their present position in the lifetime earnings distribution, benefit from this progressivity."

Mind you, this is a US study.

THE RETURN TO WORK AND WOMEN’S EMPLOYMENT DECISIONS

ABSTRACT

It is well documented that individuals in couples tend to retire around the same time. But because women tend to marry older men, this means many married women retire at younger ages than their husbands. This fact is somewhat at odds with lifecycle theory that suggests women might otherwise retire at later ages than men because they have longer life expectancies, and often have had shorter careers on account of childrearing. As a result, the opportunity cost of retirement—in terms of foregone potential earnings and accruals to Social Security wealth—may be larger for married women than for their husbands. Using the Health and Retirement Study (HRS), I find evidence that the returns to additional work beyond mid-life are greater for married women than for married men. The potential gain in Social Security wealth alone is enough to place married women on nearly equal footing with married men in terms of Social Security wealth at age 70.

Discussion and Conclusion 

This cross-cohort analysis of the employment patterns of married women has revealed several key findings. First, preferences for joint leisure persist among married women and men in recent cohorts, suggesting that the tradeoff between the potential return to continued work and preferences for joint leisure continues to be salient for couples. Second, married women in the boomer cohorts enter their early fifties earning 31 percent more than their predecessors in earlier cohorts. Married men in the boomer cohorts also earn more than their predecessors, but the growth across cohorts was 10 percent, notably less. Third, estimates of the shape of the age-earnings profiles for married women and men in their fifties indicate that the return to additional work is stable for women, but declining for men. Fourth, additional years of work beyond age 62 (the Early Retirement Age), would make a measurable increase in the Social Security wealth of married women. This is because the additional years of earnings at these ages replace earlier years of lower or zero earnings in the retirement benefit computation formula. The same is not true for men, who would see little, if any, increase in Social Security wealth if they worked beyond age 62, presumably because the additional years of earnings do not replace earlier years of lower earnings. Among the boomer cohorts, continued work places married women and married men on equal footing in terms of Social Security wealth by age 70. Finally, I find that individuals with the largest potential gains in Social Security wealth are just as likely to retire early as those with the least to gain. Individuals, it appears, do not factor these potential gains into their employment decisions, and this raises the question of whether individuals are able to accurately assess the opportunity costs associated with reducing work effort before age 70.