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The Perception of Social Security Incentives for Labor Supply and Retirement: The Median Voter Knows More Than You’d Think

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  • Jeffrey B. Liebman
  • Erzo F. P. Luttmer

Abstract

The degree to which the Social Security tax distorts labor supply depends on the extent to which individuals perceive the link between current earnings and future Social Security benefits. Some Social Security reform plans have been motivated by an assumption that workers fail to perceive this link and that increasing the salience of the link could result in significant efficiency gains. To measure the perceived linkage between labor supply and Social Security benefits, we administered a survey to a representative sample of Americans aged 50–70. We find that the majority of respondents believe that their Social Security benefits increase with labor supply. Indeed, respondents generally report a link between labor supply and future benefits that is somewhat greater than the actual incentive. We also surveyed people about their understanding of various other provisions in the Social Security benefit rules. We find that some of these provisions (e.g., effects of delayed benefit claiming and rules on widow benefits) are relatively well understood while others (e.g., rules on spousal benefits, provisions on which years of earnings are taken into account) are less well understood. In addition, our survey incorporated a framing experiment, which shows that how the incentives for delayed claiming are presented has an impact on hypothetical claiming decisions. In particular, the traditional “break-even” framing used by the Social Security Administration leads to earlier claiming than other presentations do.

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File URL: http://www.jstor.org/stable/pdfplus/10.1086/665501
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File URL: http://www.jstor.org/stable/full/10.1086/665501
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Bibliographic Info

Article provided by University of Chicago Press in its journal Tax Policy and the Economy.

Volume (Year): 26 (2012)
Issue (Month): 1 ()
Pages: 1 - 42

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Handle: RePEc:ucp:tpolec:doi:10.1086/665501

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Web page: http://www.journals.uchicago.edu/TPE/

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  1. Coile, Courtney & Diamond, Peter & Gruber, Jonathan & Jousten, Alain, 2002. "Delays in claiming social security benefits," Journal of Public Economics, Elsevier, vol. 84(3), pages 357-385, June.
  2. Pierre-Carl Michaud & Arthur van Soest, 2007. "How did the Elimination of the Earnings Test above the Normal Retirement Age affect Retirement Expectations?," Working Papers 478, RAND Corporation Publications Department.
  3. Adeline Delavande & Susann Rohwedder, 2008. "Eliciting Subjective Expectations in Internet Surveys," Working Papers 589, RAND Corporation Publications Department.
  4. Gale, William G, 1994. "Public Policies and Private Pension Contributions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 710-32, August.
  5. Liebman, Jeffrey B. & Luttmer, Erzo F.P. & Seif, David G., 2009. "Labor Supply Responses to Marginal Social Security Benefits: Evidence from Discontinuities," Scholarly Articles 4481678, Harvard Kennedy School of Government.
  6. Hugo Benítez-Silva & Berna Demiralp & Zhen Liu, 2009. "Social Security Literacy and Retirement Well-Being," Working Papers wp210, University of Michigan, Michigan Retirement Research Center.
  7. Jeffrey B. Liebman & Erzo F.P. Luttmer, 2011. "Would People Behave Differently If They Better Understood Social Security? Evidence From a Field Experiment," NBER Working Papers 17287, National Bureau of Economic Research, Inc.
  8. Susann Rohwedder & Arthur van Soest, 2006. "The Impact of Misperceptions about Social Security on Saving and Well-being," Working Papers wp118, University of Michigan, Michigan Retirement Research Center.
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Cited by:
  1. Behaghel, Luc & Blau, David M., 2010. "Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age," IZA Discussion Papers 5310, Institute for the Study of Labor (IZA).

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