Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt?

Gruber, Jonathan; Orszag, Peter R.

doi:10.3386/w7923

Cited by 84 publications

(96 citation statements)

References 8 publications

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“…The rule before 2000 was the following: workers who have not reached the FRA have their earnings reduced by $1 for every $2 earned beyond the earnings test threshold; workers who have reached the FRA have their benefits reduced by $1 for every $3 earned beyond the earnings test threshold (see Manchester and Song, 2008). Although this reduction is compensated by increased benefits at older ages (making it more or less neutral in terms of SS wealth), it may be felt as a disincentive to claim benefits by those who intend to continue working (Friedberg, 2000;Gruber and Orszag, 2003;Haider and Loughran, 2008). In 2000, the earnings test was eliminated for workers who have reached the FRA.…”

Section: Hrs Resultsmentioning

confidence: 99%

Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age

Behaghel

Blau²

2012

American Economic Journal: Economic Policy

170

121

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We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two month increments per year of birth for cohorts born from 1938 to 1943. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment are less clear-cut, but go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion. We develop a simple labor supply model with reference dependence that can explain the results. The model has potentially important implications for framing of future Social Security reforms. JEL: J26

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Section: Hrs Resultsmentioning

confidence: 99%

Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age

Behaghel

Blau²

2012

American Economic Journal: Economic Policy

170

121

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“…As documented by Gruber and Orszag (2000), the earnings test threshold for individuals aged 65-69 increased in real terms between 1978 and 2000 (when it was eliminated). There was a particularly sharp increase starting in 1996 and coinciding with the period of increased enforcement for the MSP requirement.…”

Section: The Historical Impact Of Mspmentioning

confidence: 99%

A Tax on Work for the Elderly: Medicare as a Secondary Payer

Goda

Shoven

Slavov

2007

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Medicare as a Secondary Payer (MSP) legislation requires employer-sponsored health insurance to be a primary payer for Medicare-eligible workers at firms with 20 or more employees. While the legislation was developed to better target Medicare services to individuals without access to employer-sponsored insurance, MSP creates a significant implicit tax on working beyond age 65. This implicit tax is approximately 15-20 percent at age 65 and increases to 45-70 percent by age 80. Eliminating this implicit tax by making Medicare a primary payer for all Medicare-eligible individuals could significantly increase lifetime labor supply due to the high labor supply elasticities of older workers. The extra income tax receipts from such a policy would likely offset a large percentage of the estimated costs of making Medicare a primary payer.

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“…This is illustrated in the final row of Table 1 (DRC: delayed retirement credit). The compensation for postponing claiming in the years after NRA has 3 Another consideration on the consequences and desirability of the earnings test is that its elimination may induce workers to retire "too early", not taking into account the lower benefits level (Gruber and Orszag, 2003). This could have damaging implications for poverty in old age.…”

Section: The Earnings Test and Its Potential Effects On Labor Supplymentioning

confidence: 99%

“…Friedberg (2000) argues that actual labor supply behavior reveals that individuals are not aware of the DRC. Gruber and Orszag (2003) show that in one of the leading tax guides, no mention of the DRC is made.…”

Section: A Two-period Modelmentioning

confidence: 99%

“…While several papers study the effect of the social security earnings test on actual retirement (e.g., Leonesio, 1990;Gruber and Orszag, 2003;Haider and Loughran, 2005), little is known about how workers in their late fifties or early sixties adjust their retirement plans and expectations in response to such an earnings test, which taxes away earnings later in life. The Senior Citizens' Freedom to Work Act of 2000, which eliminated the earnings test for workers aged 65 to 69, provides an excellent opportunity to look at this issue, involving a change in the effective tax structure across age groups.…”

Section: Introductionmentioning

confidence: 99%

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How Did the Elimination of the US Earnings Test above the Normal Retirement Age Affect Labour Supply Expectations?*

Michaud

Soest

2008

Fiscal Studies

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We look at the effect of the 2000 repeal of the earnings test above the normal retirement age on retirement expectations of workers in the Health and Retirement Study, aged 51 to 61 in 1992. For men, we find that those whose marginal wage rate increased when the earnings test was repealed, had the largest increase in the probability to work full-time past normal retirement age. We do not find significant evidence of effects of the repeal of the earnings test on the probability to work past age 62 or the expected claiming age. On the other hand, for those reaching the normal retirement age, deviations between the age at which Social Security benefits are actually claimed and the previously reported expected age are more negative in 2000 than in 1998. Since our calculations show that the tax introduced by the earnings test was small when accounting for actuarial benefit adjustments and differential mortality, our results suggest that although male workers form expectations in a way consistent with forward-looking behavior, they misperceive the complicated rules of the earnings test. Results for females suggest similar patterns but estimates are imprecise.

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Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt?

Cited by 84 publications

References 8 publications

Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age

Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age

A Tax on Work for the Elderly: Medicare as a Secondary Payer

How Did the Elimination of the US Earnings Test above the Normal Retirement Age Affect Labour Supply Expectations?*

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