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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] - Ecole des Ponts ParisTech - Ecole normale supérieure de Paris - 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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Bibliographic Info

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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Cited by:
  1. Ola Lotherington Vestad, 2012. "Labour supply effects of early retirement provision," Discussion Papers 717, Research Department of Statistics Norway.
  2. Blau, David M., 2011. "Pensions, Household Saving, and Welfare: A Dynamic Analysis," IZA Discussion Papers 5554, Institute for the Study of Labor (IZA).

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