Design and hypotheses

Ishall try, in Part Il of the study, to take advantage all three strategies to cope with problems of causal inference in comparative research: quasi statistical analysis, controlled comparison and supplementary internal analysis. Furthermore, Ishall devote significant effort and space to the issues of measurement - in particular to the measurement of cross-national differences in income inequality among the retired - the topic of Chapter 6.

The comparative analysis of Part Il is bas ed on a sample of nine coun-tries: Australia, Canada, Denmark, Germany (the Federal Republic before unification with the former DDR), the Netherlands, Norway, Sweden, the UK and the

us.

The countries have been selected with a view to secure substantial variation in the treatment variable: the character of the respective public pension systems. On the other hand, the sample is of course restricted to countries that can be characterized as highly developed political econornies,

and the most important practical criteria has been the availability of (pre-sumably) reliable and comparable data-sets in the LIS databank.^18S

Despite the very fundamental similarities that do exist across these nine country cases Cdemocracies with highly developed market econo-mies), it is not difficult to point out important differences in political, eco-nomic, social and demographic variables. The full nine-country sample does not by any means satisfy the ideals of a most similar systems design.

The problem of controlling for alternative explanatory factors must be addressed either by the use of (quasi-)statistical techniques or by break-ing the sample down into more homogeneous subgroups.

For the purpose of controlled comparisons, the sample does contain at least one highly attractive sub-sample - namely, the three Scandinavian countries. It is generally recognized that Denmark, Norway and Sweden form a group of relatively sirnilar macro units. They are small countries with a culturally and ethnically homogeneous population, post-industrial-ized economies with a large public sector employment, a highly union-ized workforce, a relatively compressed wage structure, high female labor force participation, "modernized" family relations, etc. These three countries have even shared a rather similar history of public pension policy (from the 1930s and onwards) with a traditional emphasis on uni-versal minimum provision. Nevertheless, as I shall hasten to emphasize once again, although it is difficult to think of a more ideal group of "sim-ilar" country cases, pertinent differences could very well exist, which would bias the results of a simple comparison of outeornes.

The remaining six countries do not form equally convincing groupings of "similar" country cases. However, Ishall tentatively speak of a group of European countries consisting of Germany, the Netherlands and the UK, and also of a group of non-European OECD countries with Australia, Canada and the US.

Both in quasi statistical analyses based on the full nine-country sample and in a controlled comparison of the three Scandinavian countries, Den-mark is a strategically important case. Unlike her Scandinavian neighbors, Denmark failed to introduee a second tier of earnings related social insur-ance pensions in the 1950s and 1960s, and has instead remained faithful to

185 Since I analyze variation in the income packaging among retirees and the contribution made by different income components, it has been necessary to include only countries where a sufficiently detailed break-down of total disposable income can in fact be achieved. For instance, in some of the LIS data-sets all income figures are net of taxes, and hence no estimate of gross income or of taxes paid can be made.

the traditional Scandinavian model of flat-rate minimum protection. The Danish exceptionalism on this point provides us with an interesting naturai experiment to contrast with the situation in other countries, and in particu-lar with the situation in the other Scandinavian countries. Information about the income distribution among Danish old age pensioners should be highly valuable for an evaluation of the main hypothesis of the present thesis.

Micro-data for Denmark have only fairly recently (autumn 1994) become available in LIS, and none of the existing studies Cdescriptive or analytical) that were mentioned in the previous section,186 have included the case of Denmark. The very fact that Denmark is included in the present study will ensure that the main hypothesis is subject to a much stronger test than was provided in the studies by Palme 0989 and 1993) and Kohl (992).

Given the inherent limitations of both quasi statistical analyses based on the full nine-country sample and of more controlled comparisons, considerable emphasis will be put on internal analyses of the way income packages of retired households are composed in each country and on the contribution made to overall inequality by different income sources.

Below Ishall restate a number of auxiliary hypotheses about these more specific mechanisms, which will be confronted with the available empiri-cal evidence in Chapter 5 and Chapter 7 of Part Il.

Definitions and demarcations of the micro-data used in Part /I

Throughout the analysis of LIS data, I follow mainstream practice con-cerning the unit of analysis and the concept of income. The unit of anal-ysis is individuals, and their income is always measured and evaluated in terms of the total house hold income, divided by a factor (an equivalence scale) to adjust for different household sizes. 187 I use the so-called LIS equivalence scale as the default choice in most of the analysis in Part Il, but occasionally alternative scales will be applied in order to test the sen-sitivity of the results obtained. 188

186 Except for Hauser (1997).

187 Technically, this is achieved by using household level information while weighting each household according the number of household members (see for instance O'Hig-gins et al., 1990; and Ringen and Uusitalo, 1992; Atkinson et al., 1995).

188 The LIS scale assigns a weight of ane to the first household member and a weight of

O.s for each subsequent household member. This is a middle-of-the-road choice be-tween scales assuming large economies of scale and scales approaching a per-capita weighting (see Buhman et al., 1988). The issue of equivalence scales is diseussed more in detail in Appendix L

It is in line with mainstream practice to measure the economic well-being of individuals as if it were a simple function of the total economic situation of the household to which he or she belongs. Of course, the implicit assumption that household members share their resources equally, or that any intra-household inequalities are irrelevant for the overall measurement of inequality, is not entirely satisfactory. However, I find that the most convenient alternative approach, to analyze the distri-bution of personal income while completely ignoring the household con-text, would involve even more unrealistic assumptions about the sources of individual welfare and the allocation of resources within house-holds. 189

The household/family definitions differ to a considerable extent between countries as represented in the LIS material. For some countries one is given the choice between families and households as units of anal-ysis - the differenee being that families belonging to multi-family house-holds are treated as separate units in the former while they are kept together in the latter case. For those country surveys that do offer a choice, I decided to use the family option, which implies that the pooling of resources within households is restricted to members of the same fam-ily. This decision is based on considerations of comparability rather than theoretical preferences. In some country surveys, notably the Swedish, the units of observation are defined very strictly in terms of the nudear family.190

I have made two choices with respect to the population under study that differ somewhat from the previous descriptive and analytical studies in the field. First, the population selected for this study, the "pensioners", are defined as individuals belonging to households in which the house-hold head has reached 65 and for which earnings (wages, salaries and self-employment income) constitute less than 1/3 of total household income. 191 The primary motive for this additional criterion is to dean out the effect of different effective retirement ages in the respective country ca ses from the picture of income inequality among those who have made

189 The intrahousehold distribution of income is a rapidly expanding area of research -see for instance ]enkins, (1990); Sutherland (1996).

190 In the Swedish data only married (or cohabiting) couples and parents and their de-pendent children under 18 are considered to belong to the same unit. People who live together without fulfilling these criteria are treated as belonging to separate families/

households.

191 In LIS the household head is taken to be the (eldest) adult male if present, and in the absenee of an adult male, the (eldest) adult female.

the transition to retirement (for a suggestion in this direction see Achdut and Tamir, 1990).192

I have also decided to further exc1ude the very old where the house-hold head has reached the age of 80 years or more. There are a number of reasons for this: First of all, it is a way to limit the possible influence of differences in mortality patterns that are likely to exist between countries (see Chapter 8 and 9 be1ow). Secondly, the exc1usion of the very elderly will prevent possible differences in the sampling procedures from adding a serious bias to the analysis. I am not confident that the country data-sets, based as they are on radically different methods for data collection (public register data versus household surveys), are equally liable to inc1ude all categories of the very elderly population. As shown by McIsaac and Wilkinson (1995), response rates to income surveys appear to be systernatically linked with income and health status, and the lower the response rate for a particular group the larger the potential bias from systematic sample se1ection.¹⁹³ Finally, there are some c1ear analytical advantages connected with the imposition of an upper limit to the age of the cohorts that wi11 enter the analysis. The very elderly birth cohorts will often have lived most of their active life under a type of pension regime that differs strongly from the experience of their somewhat younger "col-leagues". During the first three postwar decades, the public pension sys-tems in many OECD countries were radically reformed, and the syssys-tems have not everywhere reached complete rnaturation. Hence, the broa der the cohort span chosen for analysis the more difficult it is to characterize precisely the relevant pension system, and the more the observed income distribution will reflect proeesses of maturation rather than a steady-state outcome of the contemporary system. It should be recognized, however, that this choice also involves serious costs, primarily in terms of reduced sample sizes.

Hence, the samples used in the following analyses inc1ude only indi-viduals that belong to households where the household head is between

192 The specific limit chosen here (1/3) is of course to some extent arbitrary. It is meant to strike a compromise between two concerns: on the one hand to exclude households in which either the head or the spouse are still participating full time in the ordinary labor market, and on the other hand to include households in which members con-tinue a certain economic activity after their withdrawal from standard participation in the labor market.

193 Needless to say, standard weighting procedures based on age and sex will not solve this problem.