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 rich administrative data on the Dutch population and a reform that considerably restricted eligibility to SB, we identify the causal effect of SB on labour supply. Using a regression discontinuity design strategy based on the cohort-based implementation of the reform, we show that labour income after spousal death increased significantly following the reform (+110 euros, +23%). The effects are driven by changes in labour force participation and hours worked by widows. We also find evidence of program substitution, with widows relying more on disability, unemployment and welfare benefits as a result of the reform. This increase in alternative 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 need for self-insurance increase their labour supply relatively more.