Sample Selection Bias Due to Differential Mortality: A Supplementary Measure of Old-Age Poverty

Traditional "head count" measures of poverty at advanced older ages understate the risk of falling into poverty because of survivorship bias due to the income-mortality gradient, which indicates that people in poverty have higher mortality rates than people with higher income. Survivorship bias is a form of sample selection bias. This paper presents a supplementary measure for poverty at older ages, based on an adaption of a model for correcting survivorship bias in rate of return data for mutual funds. Using U.S. longitudinal data from the Health and Retirement Study (HRS) for 1996 and 2002-2012 for the same cohort, we develop a new estimate of poverty at older ages that suggests that traditional cross-sectional measures understate the risk of falling into poverty by roughly a quarter. This finding has important implications for social programs that relate to the causes and consequences of the selectivity bias.