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Persistence in Labor Supply and the Response to the Social Security Earnings Test

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Author Info

  • Leora Friedberg
  • Anthony Webb

    ()
    (Center for Retirement Research, Boston College)

Abstract

This paper investigates the impact on labor supply of changes in the Social Security earnings test in 1996 and 2000. We highlight how the persistence of labor supply choices influences both responses to policy changes and the estimation of such responses. We do this in two ways. First, we use data from the Health and Retirement Study and the Current Population Survey that allows us to compare employment transitions across cohorts that are differentially affected by changes in the earnings test rules. We show that conditioning on last year’s employment status is important in identifying responses to current earnings test changes. Second, we test the effect of not only current but also anticipated as well as past earnings test parameters which cohorts faced at earlier ages. We find that past and anticipated future rules influence current employment and earnings. Our results help to identify an effect of earnings test changes affecting ages 65-69 on employment at younger and older ages, which suggests caution about the use of neighboring age groups as control groups in analyzing responses to the earnings test. We also show that earnings test changes that were initiated in 1996 had an important effect, in addition to the changes in 2000 that have been extensively studied.

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File URL: http://crr.bc.edu/working-papers/persistence-in-labor-supply-and-the-response-to-the-social-security-earnings-test/
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Bibliographic Info

Paper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number wp2006-27.

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Length: 34 pages
Date of creation: Dec 2006
Date of revision: Dec 2006
Handle: RePEc:crr:crrwps:wp2006-27

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Keywords: labor supply; social security; earnings test; employment;

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References

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  1. COILE, Courtney & DIAMOND, Peter & GRUBER, Jonathan & JOUSTEN, Alain, 2000. "Delays in claiming social security benefits," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2000029, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, Econometric Society, vol. 65(4), pages 781-832, July.
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  9. 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.
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Citations

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Cited by:
  1. Alicia H. Munnell & Dan Muldoon & Steven A. Sass, 2009. "Recessions and Older Workers," Issues in Brief, Center for Retirement Research ib2009-9-2, Center for Retirement Research, revised Jan 2009.
  2. Jesse Bricker & Gary V. Engelhardt, 2007. "Measurement Error in Earnings Data in the Health and Retirement Study," Working Papers, Center for Retirement Research at Boston College, Center for Retirement Research wp2007-16, Center for Retirement Research, revised Oct 2007.
  3. Bo MacInnis, 2009. "Social Security and the Joint Trends in Labor Supply and Benefits Receipt Among Older Men," Working Papers, Center for Retirement Research at Boston College, Center for Retirement Research wp2009-22, Center for Retirement Research, revised Oct 2009.
  4. Alicia H. Munnell & Steven A. Sass, 2007. "The Labor Supply of Older Americans," Working Papers, Center for Retirement Research at Boston College, Center for Retirement Research wp2007-12, Center for Retirement Research, revised Jun 2007.

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