Income Mobility of the Elderly in Great Britain and the Netherlands: A Comparative Investigation

Abstract

This paper presents an empirical analysis of the income mobility of older people in Great Britain and the Netherlands, using longitudinal data from the British Household Panel Survey (BHPS) and the Dutch Socio-Economic Panel (SEP) for the period 1991 to 1997. Using the full potential of the panel data and applying appropriate regression analyses, we aim to quantify the impact of various life transitions and attributes on the income of older people in the two countries. An introductory perspective is provided by a brief investigation of the relative economic status of the older population in both countries. We find that the Dutch elderly are on average better-off than their British counterparts, and that the relative position of the elderly has improved in both countries during the 1990s. This improvement, however, was almost entirely due to the better economic status of newly retired people who retire with incomes in addition to the basic state pension. We also provide a brief comparison of the pension systems operating in the two countries. The Dutch basic pension scheme is more generous than the British and, in general, the occupational pension schemes in the Netherlands also appear to be more rewarding in terms of earnings` replacement, in provisions for early retirement and in their coverage for survivors. The empirical analysis on income mobility makes use of appropriate bivariate and multivariate tools. Equivalised household income is used to measure income mobility, and is smoothed over two years in order to reduce the impact of transitory fluctuations. Explanatory variables based on demographic and labour market attributes, as well as income, timeA¢â‚¬â€œperiod, and sample attributes, are used to identify factors associated with income mobility in old age. The results show that British elderly are more likely to experience income mobility than their Dutch counterparts. The mobility differential between the two countries is observed for both upward and downward income mobility. This differential is particularly noticeable for long-range upward income mobility (i.e. rises in annual income exceeding 15%). Undoubtedly, some of the income mobility and the differences between both countries may be artefacts due to measurement errors, but it can be safely concluded that for most people old age is not a period of stable fixed incomes. The multivariate analysis of income mobility suggests that a number of demographic, labour market and income attributes significantly correlate with income mobility. In particular, the events of widowhood and changing living arrangements appear to have a notable impact on incomes of older people in both countries. The transition into widowhood is associated with both upward and downward income mobility in the Netherlands, but only with downward income mobility in Great Britain. This differential effect will largely be a consequence of differences in individual entitlements to basic pension for women in the two countries. A change in living arrangements of older people is associated with a higher likelihood of upward as well as downward income mobility in both countries. This empirical exercise highlights the benefits and pitfalls of cross-national research on income dynamics within old age. Improvements in data quality and comparability as well as in methodology are necessary before clear scientific and policy conclusions may be drawn. This study should therefore be considered as a first step in our work on analysing income mobility in old age. Nonetheless, the results provide some pointers towards how the different social security systems affect the income risks associated with various attributes and life-course transitions experienced by older people.