1  Introduction

The objective of this paper is to examine the effect of women’s bargaining power on the accumulation of retirement income by couples in New Zealand. Bargaining models of household wealth accumulation[1] point to a potential conflict of interest between husbands and wives[2] Since wives are typically younger than their husbands and have longer life expectancy, they have to finance a longer expected retirement period. Indeed, in some countries a middle-aged wife can expect a retirement period that is, on average, 50 percent longer than her husband’s (Browning, 2000). Thus, it is argued that preferences about saving for old age may differ between a husband and wife. Because women may prefer to save more for retirement than men, in couples where women have greater relative bargaining power, households may accumulate higher levels of wealth.

This bargaining over retirement wealth has a number of implications. First, to the extent that the intra-household distribution of bargaining power affects savings rates, reforms that aim to stimulate household savings may need to consider the impact of policy on bargaining relationships as well as on individual incentives. The desire to stimulate household savings is often driven by concerns about the adequacy of retirement incomes. Thus, concerns about poverty amongst the elderly (who are disproportionately women) might best be addressed by interventions that alter women’s bargaining power within marriage. Second, bargaining is also claimed to explain the observed drop in household consumption around the age of retirement. The idea is that if the husband’s bargaining power depends upon his current income or employment status, retirement from a career job will cause a relative deterioration in his influence, so there will be a sudden shift toward the preferred (lower) consumption profile of the wife (Lundberg, Startz and Stillman, 2003).[3] Third, some conventional conclusions from theory, such as the neutrality of household saving decisions to the introduction of an actuarially fair state pension, may not hold when bargaining is important (Browning, 2000).

Despite the potential importance of household bargaining over wealth, there is only limited empirical evidence on this effect. The main result is from the United States, where household net worth in the Health and Retirement Survey is found to be about 35 percent lower when the husband has eight or more years of education more than his wife (Lundberg and Ward-Batts, 2000b). If education gaps are a good proxy for bargaining power, this suggests that when a wife is in an especially weak position, the household saves less. However, in the same model, other educational differences do not show any effect, and nor does the effect seem to be symmetric because when the wife has more education there is no increase in net worth. Evidence from an earlier specification of the model also suggested that when the wife is older (and presumed to have more power) the household has higher net worth (Lundberg and Ward-Batts, 2000a). Contrary evidence comes from Canada, where household saving rates are lower when the wife’s share of the couple’s income is higher (Browning, 1995). But this evidence is clouded by the possible endogeneity of income shares and also because the sample included younger couples. At younger ages the divergent interests of husbands and wives may be in terms of the consumption needs of children rather than the retirement income needs of the wife, so women’s exercise of bargaining power might lead to greater current consumption rather than less.

In this paper, we present evidence on the effect that women’s bargaining power has on the wealth of couples in New Zealand. This is a setting where wives are younger than their husbands (by about three years) and at retirement can expect to live for six years longer than their husbands. Thus, there are the same ingredients that, in other countries, are claimed to fuel the demand for greater wealth accumulation by wives. New Zealand is also a setting where it is argued that women are less likely to save for retirement because their economic position tends to be inferior to that of men (Gee et al., 2002). Despite these similarities, the results reported in this paper suggest a very different relationship between women’s bargaining power and wealth than has been reported previously in the literature.

In our empirical application we construct an index of power based on whether women are older, more educated and inherit more than their male spouses. An alternative index also includes the gap between husband’s and wife’s income. Using recently collected household survey data, we find that when these power indexes are higher, net worth is lower for a cohort of pre-retirement couples. Thus, improvements in women’s bargaining power appear to be associated with lower levels of wealth accumulation.

To explain this contradiction of the pattern found in the United States, we construct a consumption smoothing model of saving for retirement, following Moore and Mitchell (1997). The results from this model show that the public pension system in New Zealand replaces a larger fraction of pre-retirement income for women than for men, so the required saving rate for women’s retirement is considerably lower than for men. In this setting, it may be rational for women with greater bargaining power to favour greater current consumption rather than wealth accumulation. These results indicate the importance of specifying a precise policy context when considering the implications of household bargaining models.