Introduction does retirement affect “sandwich” generation’s family support network?

Previous researchers have attempted to study the conflict and cooperation between the State and the family. It is clear that inter-generational cooperation improves the wellbeing of all gen­erations, as it transfers consumption and education to the younger generation and consumption and care to the older generation. However, to a limited degree these transfers can emerge from an inter-temporal market. The missing degree relies largely on a family support network. It is thus vital that both economists and policy makers study the patterns and determinants for private trans­fer and their interactive roles with public transfers, as they have important economic implications, including the design and implications of public policies on income distributive issues, etc.

As in Lee (2016), the main question of interest is: Given the elements of social modernization in developing countries, is the support of older persons within the family sustainable? China, one of the fastest developing countries, is home to ever increasing old-aged populations; as the country’s urban pension provisions are linked to the labor market of the current working population, retirees also share the benefits of the growing economy. Indeed, the pension per capita has enjoyed about a 10% growth rate for the past 10 years, inadvertently challenging the traditional family support culture, Urban China therefore provides an effective context from which to study the topic, as its strong filial societal traditions continue to conflict with rising modernization.

Over the years, society has become more familiar with those citizens of the “sandwich” gen­erations (those middle aged households who not only take care of their children but also support their elderly parents). Although the literature has studied many of the relationships that exist be­tween adult children and their parents, they neglect to offer the same degree of attention to the roles that these “sandwich” generations play in the family support network. It is important to notice that these middle-aged generations are “sandwiched” between the competing needs of their children and those of their aging parents/parents-in-law. Such individuals struggle with bilateral altruism (Cigno (2016)) as they embrace their role in the income redistribution among three generations.

A lot of recent research finds that inter vivos transfers play different roles over an individ­ual’s life cycle. Switching from working age to retirement is one of the major transitioning points of the life-cycle. Previous studies provide an incomplete picture of the private transfer to retirement due to data limitation and credible identification strategy. In this paper, I study the private transfer patterns against the fast-growing public support system in urban China for these “sandwich” gener­ations. Do their children start to take on the responsibility of supporting them as they retire? What is their overall role that they play in the family support network? I investigate the overall pictures of the financial resource flow that these “sandwich” generations are facing, which includes upward transfers with their parents/ parents-in-law and their downward transfers with their children. Their stepping into retirement has significant impacts on their role in the family support network.

In order to identify the causal effect of retirement on “sandwich” generations’ financial transfers between generations, I apply a regression discontinuity framework (see Hahn, Todd, and Van der Klaauw (2001)) and exploit the exogenous mandatory retirement age rules. These strate­gies benefited substantially from CHARLS (China Health and Retirement Longitudinal Study) dataset, which itself includes information concerning middle-aged households on detailed trans­fers with both their children and their parents or parents-in-law. Detailed knowledge of extended family transfer networks allows me to shed new light on the inter-generational transfers (both elab­orate and realistic) that a real household might face. To correct for the endogenous nature of the retirement decisions, I have chosen to both explore the exogenous variability in age eligibility, and engage an identification strategy that assumes that all private transfers would be the same around the threshold for age eligibility if households do not retire.

The moment that the “sandwich” generation steps beyond the accumulation phase of their life cycle into retirement, their family support network is substantially impacted. As such, the first goal of this paper is to depict a more realistic picture of the inter-generational transfers that middle-aged Chinese households are currently facing – households that are not only dealing with downward transfers with their children but also upward transfers with their parents/parents-in-law. Secondly, this paper will explore how retirement induces these “sandwich” generations to switch from resource providers to resource takers in the private transfer channel, similarly to how their roles switch in the public transfer channel. By retiring, these individuals move from supporting the elderly by paying taxes to being supported by the younger generation through pension; the children of these individuals in turn take on the responsibilities of supporting their parents when they transfer financially to middle aged households as they retire.