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

In: Tax Policy and the Economy, Volume 26

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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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This chapter was published in:

  • Jeffrey Brown, 2012. "Tax Policy and the Economy, Volume 26," NBER Books, National Bureau of Economic Research, Inc, number brow11-2, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12559.

    Handle: RePEc:nbr:nberch:12559

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Hugo Benítez-Silva & Berna Demiralp & Zhen Liu, 2009. "Social Security Literacy and Retirement Well-Being," Working Papers, University of Michigan, Michigan Retirement Research Center wp210, University of Michigan, Michigan Retirement Research Center.
    2. 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.
    3. Gale, William G, 1994. "Public Policies and Private Pension Contributions," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 26(3), pages 710-32, August.
    4. Pierre-Carl Michaud & Arthur vanSoest, 2006. "How Did the Elimination of the Earnings Test Above the Normal Retirement Age Affect Retirement Expectations?," Working Papers, University of Michigan, Michigan Retirement Research Center wp135, University of Michigan, Michigan Retirement Research Center.
    5. Courtney Coile & Peter Diamond & Jonathan Gruber & Alain Jousten, 1999. "Delays in Claiming Social Security Benefits," NBER Working Papers 7318, National Bureau of Economic Research, Inc.
    6. 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.
    7. Adeline Delavande & Susann Rohwedder, 2008. "Eliciting Subjective Expectations in Internet Surveys," Working Papers, RAND Corporation Publications Department 589, RAND Corporation Publications Department.
    8. Susann Rohwedder & Arthur van Soest, 2006. "The Impact of Misperceptions about Social Security on Saving and Well-being," Working Papers, University of Michigan, Michigan Retirement Research Center wp118, University of Michigan, Michigan Retirement Research Center.
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    Cited by:
    1. Luc Behaghel & David M. Blau, 2012. "Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 4(4), pages 41-67, November.

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