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Framing social security reform: Behavioral responses to changes in the full retirement age

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Author Info

  • Luc Behaghel

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)

  • David M. Blau

    (OSU - Ohio State University - Ohio State University)

Abstract

We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two month increments per year of birth for cohorts born from 1938 to 1943. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment are less clear-cut, but go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion. We develop a simple labor supply model with reference dependence that can explain the results. The model has potentially important implications for framing of future Social Security reforms.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00564950.

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Date of creation: Nov 2010
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Handle: RePEc:hal:psewpa:halshs-00564950

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Keywords: social security ; framing ; loss aversion ; retirement;

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References

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Citations

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Cited by:
  1. Vestad, Ola Lotherington, 2013. "Labour supply effects of early retirement provision," Labour Economics, Elsevier, Elsevier, vol. 25(C), pages 98-109.
  2. 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.
  3. David Neumark & Joanne Song, 2011. "Do Stronger Age Discrimination Laws Make Social Security Reforms More Effective?," NBER Working Papers 17467, National Bureau of Economic Research, Inc.
  4. Ola Lotherington Vestad, 2012. "Labour supply effects of early retirement provision," Discussion Papers, Research Department of Statistics Norway 717, Research Department of Statistics Norway.
  5. Denis Fougère & Magali Beffy & Manuella Baraton, 2011. "Une évaluation de l’effet de la réforme de 2003 sur les départs en retraite. Le cas des enseignants du second degré public," Économie et Statistique, Programme National Persée, Programme National Persée, vol. 441(1), pages 55-78.
  6. Steven G. Allen & Robert L. Clark & Jennifer Maki & Melinda Sandler Morrill, 2013. "Golden Years or Financial Fears? Decision Making After Retirement Seminars," NBER Working Papers 19231, National Bureau of Economic Research, Inc.
  7. Frank Erp & Niels Vermeer & Daniel Vuuren, 2014. "Non-financial Determinants of Retirement: A Literature Review," De Economist, Springer, Springer, vol. 162(2), pages 167-191, June.
  8. Blau, David M., 2011. "Pensions, Household Saving, and Welfare: A Dynamic Analysis," IZA Discussion Papers 5554, Institute for the Study of Labor (IZA).
  9. Noelia Bernal & Frederic Vermeulen, 2014. "The Impact of an Increase in the Legal Retirement Age on the Effective Retirement Age," De Economist, Springer, Springer, vol. 162(2), pages 115-145, June.
  10. Frank van Erp & Niels Vermeer & Daniel van Vuuren, 2013. "Non-financial determinants of retirement," CPB Discussion Paper, CPB Netherlands Bureau for Economic Policy Analysis 243, CPB Netherlands Bureau for Economic Policy Analysis.
  11. Shlomo Benartzi & Alessandro Previtero & Richard H. Thaler, 2011. "Annuitization Puzzles," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 25(4), pages 143-64, Fall.

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