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Social Security and Labor Supply Incentives

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  • Roger H. Gordon

Abstract

Many provisions of the Social Security Program distort an individual's labor supply incentives. In particular, the payroll tax, the earnings test, the offsetting actuarial adjustment, and the dependence of the size of future benefits on the level of current earnings all affect the net return to extra work. The purpose of this paper is to estimate the size of the net tax rate on labor income in a variety of circumstances, taking into account all these provisions, as well as the personal income tax. We find that the Social Security Program on net in the past has provided a large subsidy to labor supply, which for many people effectively offset the personal income tax. This subsidy rate, however, has been declining steadily over time.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0986.

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Date of creation: Sep 1982
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Publication status: published as Gordon, Roger H. "Social Security and Labor Supply Incentives." Contemporary Economic Policy, Vol. 1, no. 3. (April 1983), pp. 16-22.
Handle: RePEc:nbr:nberwo:0986

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  1. Burkhauser, Richard V & Turner, John A, 1978. "A Time-Series Analysis on Social Security and Its Effect on the Market Work of Men at Younger Ages," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 701-15, August.
  2. 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.
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Cited by:
  1. Feldstein, Martin & Samwick, Andrew A., 1992. "Social Security Rules and Marginal Tax Rates," National Tax Journal, National Tax Association, vol. 45(1), pages 1-22, March.
  2. Michael J. Boskin & Laurence J. Kotlikoff, 1985. "Pubic Debt and U.S. Saving: A New Test of the Neutrality Hypothesis," NBER Working Papers 1646, National Bureau of Economic Research, Inc.
  3. Brian S. Armour & M. Melinda Pitts, 2002. "Incorporating insurance rate estimates and differential mortality into net marginal Social Security tax rate calculations," Working Paper 2002-29, Federal Reserve Bank of Atlanta.
  4. Alan J. Auerbach & Laurence J. Kotlikoff, 1985. "The Efficiency Gains from Social Security Benefit - Tax Linkage," NBER Working Papers 1645, National Bureau of Economic Research, Inc.
  5. Louis Kaplow, 2006. "Myopia and the Effects of Social Security and Capital Taxation on Labor Supply," NBER Working Papers 12452, National Bureau of Economic Research, Inc.
  6. Alan L. Gustman & Thomas L. Steinmeier, 1983. "Social Security Reform and Labor Supply," NBER Working Papers 1212, National Bureau of Economic Research, Inc.

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