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How Did the Elimination of the Earnings Test above the Normal Retirement Age Affect Retirement Expectations?

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Author Info
Pierre-Carl Michaud () (RAND and IZA)
Arthur van Soest () (RAND, Tilburg University and IZA)

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Abstract

We look at the effect of the 2000 repeal of the earnings test above the normal retirement age (NRA) on retirement expectations of male workers in the Health and Retirement Study (HRS). Using administrative records on Social Security benefit entitlements linked to the HRS survey data, we can distinguish groups of respondents according to how, before the repeal, the earnings test would have affected their marginal wage rate after the NRA. We use panel data models with fixed and random effects to investigate the effect of the repeal on the subjective probability to work full-time after the NRA as well as after age 62. We find that male workers whose marginal wage rate increased because the earnings test was repealed, had the largest increase in this probability. We find no significant effects of the repeal on the probability to work full-time past age 62. Since the tax introduced by the earnings test was small when accounting for actuarial benefit adjustments, our results suggest that male workers misperceive the complicated rules of the earnings test.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2868.

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Length: 37 pages
Date of creation: Jun 2007
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Handle: RePEc:iza:izadps:dp2868

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Related research
Keywords: social security earnings test; expectations; retirement; difference in differences; panel data;

Other versions of this item:

Find related papers by JEL classification:
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Richard Disney & Sarah Smith, 2002. "The Labour Supply Effect of the Abolition of the Earnings Rule for Older Workers in the United Kingdom," CeRP Working Papers 17, Center for Research on Pensions and Welfare Policies, Turin (Italy). [Downloadable!]
    Other versions:
  2. B. Douglas Bernheim, 1989. "The Timing of Retirement: A Comparison of Expectations and Realizations," NBER Chapters, in: The Economics of Aging, pages 335-358 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  3. 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. [Downloadable!] (restricted)
  4. Giovanni Mastrobuoni, 2006. "The Social Security Earnings Test Removal: Money Saved or Money Spent by the Trust Fund?," Working Papers 892, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  5. 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. [Downloadable!] (restricted)
  6. Li Gan & Michael Hurd & Daniel McFadden, 2003. "Individual Subjective Survival Curves," NBER Working Papers 9480, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Blackwell Publishing, vol. 47(1), pages 225-38, January. [Downloadable!] (restricted)
  8. Giovanni Mastrobuoni, 2006. "The Social Security Earnings Test Removal: Money Saved or Money Spent by the Trust Fund?," Working Papers 69, Princeton University, Department of Economics, Center for Economic Policy Studies.. [Downloadable!]
  9. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09. [Downloadable!] (restricted)
  10. Adeline Delavande & Susann Rohwedder, 2008. "Differential Mortality in Europe and the U.S.: Estimates Based on Subjective Probabilities of Survival," Working Papers 613, RAND Corporation Publications Department. [Downloadable!]
  11. Leora Friedberg, 2000. "The Labor Supply Effects of the Social Security Earnings Test," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 48-63, February. [Downloadable!] (restricted)
  12. Honore, Bo E, 1992. "Trimmed LAD and Least Squares Estimation of Truncated and Censored Regression Models with Fixed Effects," Econometrica, Econometric Society, vol. 60(3), pages 533-65, May. [Downloadable!] (restricted)
  13. Giovanni Mastrobuoni, 2006. "The Social Security Earnings Test Removal. Money Saved or Money Spent by the Trust Fund?," Carlo Alberto Notebooks 25, Collegio Carlo Alberto. [Downloadable!]
    Other versions:
  14. Chan, Sewin & Stevens, Ann Huff, 2004. "Do changes in pension incentives affect retirement? A longitudinal study of subjective retirement expectations," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1307-1333, July. [Downloadable!] (restricted)
  15. Richard Disney & Sarah Tanner, 1999. "What can we learn from retirement expectations data?," IFS Working Papers W99/17, Institute for Fiscal Studies. [Downloadable!]
  16. David S. Loughran & Steven Haider, 2007. "Do the Elderly Respond to Taxes on Earnings? Evidence from the Social Security Retirement Earnings Test," Working Papers 223-1, RAND Corporation Publications Department. [Downloadable!]
  17. Hugo Benítez-Silva & Debra S. Dwyer, 2005. "The Rationality of Retirement Expectations and the Role of New Information," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 587-592, November. [Downloadable!] (restricted)
  18. Bo Honoré & Søren Leth-Petersen, 2006. "Estimation of Panel Data Models with Two-sided Censoring," CAM Working Papers 2006-14, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics. [Downloadable!]
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