Labour Supply and Survivor Insurance in the Netherlands

Abstract

This paper investigates the effects of survivor benefits (SB) on the labour supply of widows. Using richadministrative data on the Dutch population and a reform that considerably restricted eligibility to SB, weidentify the causal effect of SB on labour supply. Using a regression discontinuity design strategy based onthe cohort-based implementation of the reform, we show that labour income after spousal death increasedsignificantly following the reform (+110 euros, +23%). The effects are driven by changes in labour forceparticipation and hours worked by widows. We also find evidence of program substitution, with widowsrelying more on disability, unemployment and welfare benefits as a result of the reform. This increase inalternative benefits further limits the reduction in total income caused by the reform by an average of 60 euros.Regarding the heterogeneity of the labour supply response, we find that widows with a relatively higher needfor self-insurance increase their labour supply relatively more.