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Social Security and the Decision to Retire

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  • Anthony J. Pellechio
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    Abstract

    This study examines empirically whether social security influences the retirement decisions of individuals. The framework for this study is the life-cycle model of individual behavior. The life-cycle model shows that there are two main ways in which social security can affect behavior. One way is through the change in an individual's lifetime income that social security can bring about. The other way has to do with how the system changes compensation for work. Social security's income and substitution effects are included in a model for examining retirement decisions. This model is based on the model of labor force participation that has become standard in the literature on labor supply. The data used in this study come from the Social Security Administration and are particularly well suited for this study. Retirement models are estimated separately for samples of 62-64 and 65-70 year old men. The empirical results support the conclusion that social security influences the decision to retire. The magnitude of behavioral responses to changes in social security benefits are reported and implications for future behavior are discussed.

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    File URL: http://www.nber.org/papers/w0734.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0734.

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    Date of creation: Aug 1981
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    Publication status: Published as "Social Security and Household Wealth Accumulation: New Microeconomic Evidence", Review of Economics and Statistics, Vol. 61, no. 3 (1979): 361-368.
    Handle: RePEc:nbr:nberwo:0734

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    1. Campbell, Colin D & Campbell, Rosemary G, 1976. "Conflicting Views on the Effect of Old-Age and Survivors Insurance on Retirement," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 369-88, September.
    2. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, vol. 10(3), pages 295-336, December.
    3. Sheshinski, Eytan, 1978. "A model of social security and retirement decisions," Journal of Public Economics, Elsevier, vol. 10(3), pages 337-360, December.
    4. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S11-44, August.
    5. Crawford, Vincent P & Lilien, David M, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, MIT Press, vol. 96(3), pages 505-29, August.
    6. Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
    7. Blinder, Alan S & Weiss, Yoram, 1976. "Human Capital and Labor Supply: A Synthesis," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 449-72, June.
    8. Alan S. Blinder & Roger H. Gordon & Donald E. Wise, 1980. "Reconsidering the Work Disincentive Effects of Social Security," NBER Working Papers 0562, National Bureau of Economic Research, Inc.
    9. Pellechio, Anthony J, 1979. "Social Security Financing and Retirement Behavior," American Economic Review, American Economic Association, vol. 69(2), pages 284-87, May.
    10. Reuben Gronau, 1974. "The Effect of Children on the Housewife's Value of Time," NBER Chapters, in: Economics of the Family: Marriage, Children, and Human Capital, pages 457-490 National Bureau of Economic Research, Inc.
    11. Boskin, Michael J, 1977. "Social Security and Retirement Decisions," Economic Inquiry, Western Economic Association International, vol. 15(1), pages 1-25, January.
    12. Anthony J. Pellechio, 1979. "The Estimation of Labor Supply Over Kinked Budget Constraints: Some New Econometric Methodology," NBER Working Papers 0387, National Bureau of Economic Research, Inc.
    13. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
    14. Samuelson, Paul A, 1975. "Optimum Social Security in a Life-Cycle Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(3), pages 539-44, October.
    15. Gronau, Reuben, 1977. "Leisure, Home Production, and Work-The Theory of the Allocation of Time Revisited," Journal of Political Economy, University of Chicago Press, vol. 85(6), pages 1099-1123, December.
    16. Olivia S. Mitchell & Gary S. Fields, 1981. "The Effects of Pensions and Earnings on Retirement: A Review Essay," NBER Working Papers 0772, National Bureau of Economic Research, Inc.
    17. Jeremy I. Bulow, 1981. "Early Retirement Pension Benefits," NBER Working Papers 0654, National Bureau of Economic Research, Inc.
    18. Kotlikoff, Laurence J, 1979. "Testing the Theory of Social Security and Life Cycle Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 396-410, June.
    19. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-94, July.
    20. Hu, Sheng Cheng, 1979. "Social Security, the Supply of Labor, and Capital Accumulation," American Economic Review, American Economic Association, vol. 69(3), pages 274-83, June.
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    Cited by:
    1. Alan B. Krueger & Bruce D. Meyer, 2002. "Labor Supply Effects of Social Insurance," NBER Working Papers 9014, National Bureau of Economic Research, Inc.
    2. repec:fth:prinin:255 is not listed on IDEAS
    3. Olivia S. Mitchell & Gary S. Fields, 1981. "The Effects of Pensions and Earnings on Retirement: A Review Essay," NBER Working Papers 0772, National Bureau of Economic Research, Inc.
    4. Krueger, Alan B & Pischke, Jorn-Steffen, 1992. "The Effect of Social Security on Labor Supply: A Cohort Analysis of the Notch Generation," Journal of Labor Economics, University of Chicago Press, vol. 10(4), pages 412-37, October.
    5. Alan L. Gustman & Thomas L. Steinmeier, 1982. "Minimum Hours Constraints and Retirement Behavior," NBER Working Papers 0940, National Bureau of Economic Research, Inc.

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