News Release

Paychecks & power: Husbands lose some household control when they retire

Business Announcement

University of Washington

Society may honor the dignity and importance of the homemaker, but it's the family wage-earner who is more likely to control household spending.

That's one implication of a new study by a trio of economists who found evidence that wives gain more influence after their husbands retire.

This became apparent when the researchers studied the markedly different ways in which couples and single people react to retirement. Couples cut their food spending – at home and restaurants – by an average of 9 percent, while singles barely changed their spending habits at all.

The best explanation for the difference, says University of Washington economics Professor Shelly Lundberg, lies in the shift in “household bargaining” power that occurs when a husband retires.

Since wives are typically younger and women’s life expectancy exceeds that of men, wives may prefer to spend the family savings more frugally to avoid running out, said Lundberg, who co-wrote the study with UW colleague Professor Richard Startz and RAND research economist Steven Stillman.

A sudden drop in spending is exactly what the researchers saw among the couples but not among single retirees, indicating that wives gain more power over the purse once husbands retire.

“If the husband’s bargaining power depends on his current employment status,” Lundberg said, “retirement will cause a relative deterioration in his influence on household decisions and a decline in the couple’s spending.”

Retirement is an event people anticipate, of course, and standard economic models show that families would do better to smooth out their spending through fat and lean years rather than tighten their belts all of a sudden. Economists have come up with various theories to explain why people don’t act as expected – irrational behavior or a lack of knowledge, for example.

But only the “household bargaining” model, the researchers said, satisfactorily explains the difference between the post-retirement reactions of couples and singles. Lundberg is considered a pioneer in developing the household-bargaining approach, currently a hot topic in economics. While traditional models treat the household as a single individual and do not allow for possible conflicts of interest between husbands and wives, the bargaining approach factors in the economic needs and power of each.

“Before we decide that people are completely irrational,” Lundberg said, “maybe we ought to consider an alternative explanation.”

The bargaining explanation is bolstered, Lundberg said, by the fact that the post-retirement spending dip was sharpest among couples in which the husband was substantially older than the wife – in other words, when the economic interests of husbands and wives were most at odds.

The evidence was derived from more than 550 households in which a member retired between 1979 and 1992 (the most recent survey years available). The households were surveyed in depth as part of the national Panel Study of Income Dynamics. The research was supported by the National Institute on Aging.

While the influence gap between husbands and wives may narrow in years to come, as women’s salaries approach those of men, the economists pointed to other implications of their study. It suggests, for example, that companies should design retirement programs that take the whole family’s needs and wishes into account – not just those of the employee.

“Researchers and policymakers,” Lundberg said, “tend to believe that what goes on in families doesn’t need to be considered.”

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The topic is of particular interest for two of the study’s authors: Lundberg and Startz are married to each other. The third researcher, Stillman, received his UW economics doctorate last year and is a postdoctoral fellow at RAND, a Santa Monica, Calif., think tank.

The study, to be published in the upcoming Journal of Public Economics, is one of the first publications of the UW’s new Center for Research on the Family, an interdisciplinary project to generate innovative research on family behavior.


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