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Social Security, Earnings Tests, and Age at Retirement

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Author Info

  • Gary Burtless

    (Brookings Institution)

  • Robert A. Moffitt

    (Brown University)

Abstract

The effect of a Social Security system on the decision to retire is a matter of considerable controversy. Among the aspects of such systems causing debate have been the existence and effects of imperfect capital markets, the purported incentives embodied in "earnings tests, "the degree of actuarial fairness in such systems, and the degree to which incentives increase or decrease at certain critical ages (62 and 65 in the United States). The present article contains an analysis of the retirement decision that illuminates many of these issues and provides new insights into the effects of Social Security on retirement. Using a straightforward labor-leisure model and associated analytical diagrams, the article shows the labor-supply effect of actuarial unfairness in the benefit formula, the impact of an earnings test in causing workers to postpone retire ment (thus increasing lifetime labor supply), and the impact of imperfect capital markets on the timing of retirement.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 14 (1986)
Issue (Month): 1 (January)
Pages: 3-27

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Handle: RePEc:sae:pubfin:v:14:y:1986:i:1:p:3-27

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Cited by:
  1. Laurence J. Kotlikoff & David A. Wise, 1987. "Pension Backloading, Wage Taxes, and Work Disincentives," NBER Working Papers 2463, National Bureau of Economic Research, Inc.
  2. Josef Zweimüller, 1993. "Partial retirement and the earnings test," Journal of Economics, Springer, Springer, vol. 57(3), pages 295-303, October.
  3. Estelle James & Alejandra Cox Edwards, 2005. "Do Individual Accounts Postpone Retirement: Evidence from Chile," Working Papers, University of Michigan, Michigan Retirement Research Center wp098, University of Michigan, Michigan Retirement Research Center.
  4. Peter Diamond & Jonathan Gruber, 1997. "Social Security and Retirement in the U.S," NBER Working Papers 6097, National Bureau of Economic Research, Inc.
  5. Tetsuji Yamada & Tadashi Yamada, 1987. "Social Security and Earlier Retirement in Japan: Cross-Sectional Evidence," NBER Working Papers 2442, National Bureau of Economic Research, Inc.
  6. Michael D. Hurd, 1989. "Issues and Results from Research on the Elderly I: Economic Status (Part I of III Parts)," NBER Working Papers 3018, National Bureau of Economic Research, Inc.
  7. Michael D. Hurd, 1993. "The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers," NBER Working Papers 4462, National Bureau of Economic Research, Inc.

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