Academic journal article NBER Reporter

The Economics of the Elderly

Academic journal article NBER Reporter

The Economics of the Elderly

Article excerpt

The Economics of the Elderly

In recent decades, the economic and social position of the elderly has improved in many ways. Poverty has been substantially reduced; the income of the elderly relative to other groups has risen; and they are living longer.(1) However, in some respects, the well-being of the elderly appears to have deteriorated. Over 60 percent of those over age 60, and 57 percent of those over age 85, now live alone, compared with only 25 and 13 percent, respectively, in the 1940s. At the same time, the rate of institutionalization has more than tripled: today, almost a quarter of those over age 85 live in institutions, compared with only 7 percent in the 1940s.

In addition to living in circumstances that potentially are more isolated, the elderly in many ways face greater financial risks than existed in the past. The continuing trend toward early retirement, coupled with increases in lifespan, is leaving the aged with more and more years of retirement over which their resources must be rationed. Many married women in particular are at risk of suffering severe declines in their living standards if they become widows. But surely the biggest risk is of institutionalization, which for most elderly holds the prospect of rapid impoverishment.

These facts raise a number of interesting economic and demographic questions that my colleagues and I began to explore in 1984 as part of the NBER's Project on the Economics of Aging. Much of my research has been supported by the National Institute of Aging, to which I am exceedingly grateful.

Family Support of the Elderly

In order to study family support of the aged, researchers need matched data on the elderly and their children. Unfortunately, as of 1984 there were few datasets with that type of detailed information (particularly on the very old). So John N. Morris, of the Hebrew Rehabilitation Center for the Aged (HRCA), and I designed a survey and administered it to 850 children of elderly residents who were also participating in a ongoing HRCA survey of Massachusetts elderly.

Using both datasets, we learned that over one-fifth of the elderly (over age 60) in Massachusetts have no children. Further, daughters tend to be involved in care-giving more than their sons. But over half of the elderly either do not have a daughter, or do not have one who lives within an hour of them.

We also found that over half of the single elderly, and two-fifths of the vulnerable elderly (defined by needing help with daily living activities), live completely alone. Of the elderly who have children, fewer than 25 percent live with their children. And, in a typical month, over 25 percent of the elderly who have children do not spend any time with them.

Further, children with institutionalized or vulnerable parents spend less time with them than children with healthy parents do. Some of the elderly receive a considerable amount of help and attention from their children, while others receive very little. And, financial assistance from children to their elderly parents, even in cases in which the elderly are quite poor, is extremely rare.(2)

Living Arrangements

In the past, many studies suggested that the elderly wanted to live alone, and pointed to their rising incomes as the explanation for their increasing propensity to do so. But virtually none of these studies considered the attitudes and incomes of the children who would have had to house their aged parents.

Morris and I constructed a model of the joint decision of parents and children to live together; it uses data on living arrangements and on the characteristics of children and parents.(3) Based on the NBER-HRCA data, we found that children generally prefer to live alone, and that many agree to share housing with their elderly parents only because it is economically advantageous. Since incomes of parents and children are correlated positively, the earlier findings--that as their incomes rise, the elderly choose to live alone--may really reflect the fact that, as children's incomes rise, they choose not to live with their elderly parents. …

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