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The Labour Supply Effect of the Abolition of the Earnings Rule for Older Workers in the United Kingdom

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Author Info

  • Richard Disney

    ()
    (University of Nottingham and IFS)

  • Sarah Smith

    (Financial Services Authority)

Abstract

High effective tax rates on work at and around state pension age deter participation. An example is the ‘earnings test’ operating in several OECD countries. The United States abolished its test for the 65+ age group in 2000. The United Kingdom offers a ‘natural experiment’ of this reform, as it abolished its test, known as the ‘earnings rule',in 1989. We examine the effect of this change, taking account of the opportunity to defer pension rights. Abolition of the rule raised working hours of older male workers by around 4 hours a week, with a lesser impact on women’s behaviour.

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Bibliographic Info

Paper provided by Center for Research on Pensions and Welfare Policies, Turin (Italy) in its series CeRP Working Papers with number 17.

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Length: 24 pages
Date of creation: Jan 2002
Date of revision:
Publication status: published in The Economic Journal , Vol. 112, Issue 478, March 2002
Handle: RePEc:crp:wpaper:17

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Keywords: Labour supply; Retirement; Earnings Test;

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References

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  1. Joshua Angrist & Alan Krueger, 1998. "Empirical Strategies in Labor Economics," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 98-7, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Richard Blundell & Alan Duncan & Costas Meghir, 1995. "Estimating labour supply responses using tax reforms," IFS Working Papers, Institute for Fiscal Studies W95/07, Institute for Fiscal Studies.
  3. Burtless, Gary & Moffitt, Robert A, 1985. "The Joint Choice of Retirement Age and Postretirement Hours of Work," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 3(2), pages 209-36, April.
  4. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc.
  5. Jonathan Gruber & Peter Orszag, 2000. "Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt?," NBER Working Papers 7923, National Bureau of Economic Research, Inc.
  6. Alan L. Gustman & Thomas L. Steinmeier, 1983. "A Structural Retirement Model," NBER Working Papers 1237, National Bureau of Economic Research, Inc.
  7. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  8. Richard Blundell & Paul Johnson, 1997. "Pensions and Retirement in the UK," NBER Working Papers 6154, National Bureau of Economic Research, Inc.
  9. Zabalza, A. & Pissarides, C. & Barton, M., 1980. "Social security and the choice between full-time work, part-time work and retirement," Journal of Public Economics, Elsevier, Elsevier, vol. 14(2), pages 245-276, October.
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  11. Edward Whitehouse, 1990. "The abolition of the pensions 'earnings rule'," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 11(3), pages 55-70, August.
  12. Leora Friedberg, 1999. "The Labor Supply Effects of the Social Security Earnings Test," NBER Working Papers 7200, National Bureau of Economic Research, Inc.
  13. 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.
  14. Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(2), pages 605-37, May.
  15. Leora Friedberg, 1998. "The Social Security Earnings Test and Labor Supply of Older Men," NBER Chapters, National Bureau of Economic Research, Inc, in: Tax Policy and the Economy, Volume 12, pages 121-150 National Bureau of Economic Research, Inc.
  16. Richard Blundell & Paul Johnson, 1999. "Pensions and Retirement in the United Kingdom," NBER Chapters, National Bureau of Economic Research, Inc, in: Social Security and Retirement around the World, pages 403-435 National Bureau of Economic Research, Inc.
  17. repec:fth:stanho:e-90-11 is not listed on IDEAS
  18. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, University of Wisconsin Press, vol. 25(3), pages 415-490.
  19. Sveinbjörn Blöndal & Stefano Scarpetta, 1999. "The Retirement Decision in OECD Countries," OECD Economics Department Working Papers, OECD Publishing 202, OECD Publishing.
  20. Baker, Michael & Benjamin, Dwayne, 1999. "How do retirement tests affect the labour supply of older men?," Journal of Public Economics, Elsevier, Elsevier, vol. 71(1), pages 27-51, January.
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