The death of a spouse is not only a devastating personal loss but also a significant economic risk. To support widows and widowers, many countries provide public survivors’ benefits. The main aim of these benefits is to cushion the decline in living standards following a spouse's death, compensating for the loss of economies of scale and of the deceased partner's income.
In recent years, however, the need for these public survivors' insurance schemes has been questioned. This is partly because these schemes require substantial public funding, and partly because women, who have historically been the main beneficiaries, have significantly increased their labour force participation and are now less likely to face poverty in widowhood. As a result, several countries have decided to reduce or even eliminate public survivors' benefits.
In Rabaté and Tréguier (2023), we investigate the impact of public survivor benefits on the labour supply of widows in the Netherlands. We focus on a 1996 reform that drastically restricted eligibility for these benefits for widows born after 1950. Under the new rules, benefits were only available to those caring for a child under 18 or those who were disabled. This reform created a clear eligibility discontinuity, which allows us to compare the income sources of women before and after the death of their spouse between those affected by the reform (born after 1950) and those who were not (born before 1950).
The restriction led to a significant decrease in average survivors’ benefits (-€570). In response, there was a notable increase in labour income (+€110, or +23%). This increase was driven by higher labour force participation and more hours worked by widows, with no effect on wage rates.
Our findings show that widows with a higher need for self-insurance, typically those with low personal earnings and a husband who was the main breadwinner, increased their labour supply the most. Additionally, we observed a rise in the use of alternative programs, with increased take-up of disability (+1.5 percentage points), unemployment (+3.2 percentage points), and welfare benefits (+6.2 percentage points). This increase in alternative benefits partially offset the loss in total income due to the reform by an average of €60. Overall, widows experienced a net income loss of €400 after the death of their spouse due to the reform.
Survivors' benefits may discourage widows from working by providing financial support to those who would otherwise remain in the labour market. This study shows that these effects are significant in the Netherlands. However, the reform also led many widows to claim other social benefits. Overall, survivors' benefits may reduce incentives to work, but widows still need social security support to cope with their financial burden.
This study was published in Labour Economics:
Rabaté, S., & Tréguier, J. (2024). Labour supply and survivor insurance in the Netherlands. Labour Economics, 88, 102527.
