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Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age

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Author Info

  • Behaghel, Luc

    ()
    (Paris School of Economics)

  • Blau, David M.

    ()
    (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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5310.

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Length: 61 pages
Date of creation: Nov 2010
Date of revision:
Publication status: published in: American Economic Journal: Economic Policy, 2012, 4 (4), 41-67
Handle: RePEc:iza:izadps:dp5310

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Keywords: social security; loss aversion; retirement;

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References

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Cited by:
  1. 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, vol. 441(1), pages 55-78.
  2. David Neumark & Joanne Song, 2011. "Do Stronger Age Discrimination Laws Make Social Security Reforms More Effective?," Working Papers wp249, University of Michigan, Michigan Retirement Research Center.
  3. Vestad, Ola Lotherington, 2013. "Labour supply effects of early retirement provision," Labour Economics, Elsevier, vol. 25(C), pages 98-109.
  4. Blau, David M., 2011. "Pensions, Household Saving, and Welfare: A Dynamic Analysis," IZA Discussion Papers 5554, Institute for the Study of Labor (IZA).
  5. Ola Lotherington Vestad, 2012. "Labour supply effects of early retirement provision," Discussion Papers 717, Research Department of Statistics Norway.
  6. Frank van Erp & Niels Vermeer & Daniel van Vuuren, 2013. "Non-financial determinants of retirement," CPB Discussion Paper 243, CPB Netherlands Bureau for Economic Policy Analysis.
  7. 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.
  8. Shlomo Benartzi & Alessandro Previtero & Richard H. Thaler, 2011. "Annuitization Puzzles," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 143-64, Fall.

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