Engelhardt, Gary V., Jonathan Gruber, and Cynthia D. Perry. 2005. "Social Security and Elderly Living Arrangements: Evidence from the Social Security Notch." Journal of Human Resources 40(2): 354-372.

Previous studies of the effect of Social Security on elderly living arrangements generally have relied on data from the distant past or differences in benefits across families or cohorts that potentially were correlated with other determinants of living arrangements. Using data from the 1980-99 Current Population Surveys, we attempt to isolate the causal effect of Social Security on living arrangements with an instrumental-variable approach that relies on the large shifts in benefits for cohorts born from 1910-21, the so-called Social Security notch. Over all elderly households, the estimated elasticity of living with others with respect to Social Security income is -0.4, with elasticities of -1.3 and -1.4 for the widowed and divorced, respectively; most of the effects on living arrangements appear to be concentrated among the lesser educated as well. Our estimated elasticities are substantially larger than those from previous studies and suggest that reductions in current benefits would alter living arrangements significantly.

Gary V. Engelhardt is an associate professor of economics, Center for Policy Research, Syracuse University. Jonathan Gruber is a professor of economics, Massachusetts Institute of Technology and National Bureau of Economic Research. Cynthia D. Perry is a Robert Woods Johnson scholar in health policy research at Harvard University. The authors are grateful to Dan Black, Peter Diamond, Stacy Dickert-Conlin, Bill Evans, Roger Gordon, Olivia Mitchell, Kathleen McGarry, Peter Orszag, Doug Wolf, and two anonymous referees for helpful comments. Stacy Dickert-Conlin and Cristian Meghea graciously provided the June 1980 and 1985 CPS and the 1982 New Beneficiary Survey data used. Engelhardt acknowledges research support from Syracuse University. Perry acknowledges research support from the National Science Foundation. The views of the paper are those of the authors and do not reflect the views of the National Bureau of Economic Research, MIT, or Syracuse University. The data used in this article can be obtained beginning October 2005 through September 2008 from Gary Engelhardt, Center for Policy Research, 426 Eggers Hall, Syracuse University, Syracuse, NY, 13244, gvengelh@maxwell.syr.edu.