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The Repeal of the Retirement Earnings Test and the Labor Supply of Older Men

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  • Gary V. Engelhardt
  • Anil Kumar

    ()
    (Federal Reserve Bank of Dallas)

Abstract

This paper examines the impact of the Senior Citizens Freedom to Work Act of 2000, which abolished the Social Security retirement earnings test for those aged 65-69, on the labor supply of older men using data from the 1996-2004 waves of the Health and Retirement Study (HRS). Based on reduced-form specifications, we find that the repeal of the earnings test increased labor supply on the intensive margin by 12-17%, the bulk of which was concentrated among men with a high-school degree, whose labor supply rose by 19-26%. We formulate a unique test for endogenous reporting of health status by examining how reported health changes with the repeal of the earnings test. We find some evidence of endogenous self-reported health status. In particular, older men were substantially less likely to have reported that health limits their ability to work after, relative to before the earnings test repeal, with the bulk of the effect concentrated among men with high-school degrees, who had the largest labor-supply response to the repeal.

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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 wp2007-01.

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Length: 29 pages
Date of creation: May 2007
Date of revision: May 2007
Handle: RePEc:crr:crrwps:wp2007-01

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Keywords: retirement earnings test; labor supply; older men; aging;

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References

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  1. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2006. "Robust Inference with Multi-way Clustering," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0327, National Bureau of Economic Research, Inc.
  2. Alan L. Gustman & Thomas L. Steimeier, 2004. "The Social Security Retirement Earning Test,Retirement and Benefit Claiming," Working Papers, University of Michigan, Michigan Retirement Research Center wp090, University of Michigan, Michigan Retirement Research Center.
  3. David Card, 1990. "Labor Supply with a Minimum Hours Threshold," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 642, Princeton University, Department of Economics, Industrial Relations Section..
  4. Leora Friedberg, 1999. "The Labor Supply Effects of the Social Security Earnings Test," NBER Working Papers 7200, National Bureau of Economic Research, Inc.
  5. 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.
  6. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 31(1), pages 93-118, February.
  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.
  8. Jerry A. Hausman, 1980. "The effect of wages, taxes, and fixed costs on women's labor force participation," NBER Chapters, National Bureau of Economic Research, Inc, in: Econometric Studies in Public Finance, pages 161-194 National Bureau of Economic Research, Inc.
  9. repec:fth:prinin:262 is not listed on IDEAS
  10. David S. Loughran & Steven Haider, 2007. "Do the Elderly Respond to Taxes on Earnings? Evidence from the Social Security Retirement Earnings Test," Working Papers, RAND Corporation Publications Department 223-1, RAND Corporation Publications Department.
  11. Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 945-63, June.
  12. Gruber, Jonathan & Orszag, Peter, 2003. "Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt?," National Tax Journal, National Tax Association, vol. 56(4), pages 755-73, December.
  13. 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.
  14. Alan Gustman & Olivia S. Mitchell & Thomas L. Steinmeier, . "Retirement Measures in the Health and Retirement Survey," Pension Research Council Working Papers, Wharton School Pension Research Council, University of Pennsylvania 94-2, Wharton School Pension Research Council, University of Pennsylvania.
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Cited by:
  1. SHIMIZUTANI Satoshi & OSHIO Takashi, 2013. "Revisiting the Labor Supply Effect of Social Security Earnings Test: New evidence from its elimination and reinstatement in Japan," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 13016, Research Institute of Economy, Trade and Industry (RIETI).
  2. Christian N. Brinch & Erik Hernæs & Zhiyang Jia, 2012. "Labor supply on the eve of retirement. Disparate effects of immediate and postponed rewards to working," Discussion Papers, Research Department of Statistics Norway 698, Research Department of Statistics Norway.
  3. Hernæs, Erik & Jia, Zhiyang, 2012. "Earning Distribution and Labour Supply after a Retirement Earnings Test Reform," Memorandum, Oslo University, Department of Economics 01/2012, Oslo University, Department of Economics.
  4. Vere, James P., 2011. "Social Security and elderly labor supply: Evidence from the Health and Retirement Study," Labour Economics, Elsevier, Elsevier, vol. 18(5), pages 676-686, October.
  5. 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.
  6. 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.

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