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Taxes, Wages, and the Labor Supply of Older Americans

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Given the aging of the U.S. population, and the greater contributions of older workers to the labor force, understanding how policy levers can affect elderly labor supply has become increasingly important. In this paper we use data from the Health and Retirement Study linked to state identifiers to estimate the responsiveness of the labor supply of older workers to the wage and features of the tax code, both on the probability of participating in the labor market, as well as on hours of work for those who choose to work. We find that a 10 percent increase in the wage is associated with a five percent increase in participation, and we estimate slightly larger responses to marginal tax rates. These results suggest that government policies could increase the labor supply of older individuals by changing the returns to work through the tax code.

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  • Lucie Schmidt & Purvi Sevak, 2008. "Taxes, Wages, and the Labor Supply of Older Americans," Department of Economics Working Papers 2008-16, Department of Economics, Williams College.
    • Handle: RePEc:wil:wileco:2008-16
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    2. J L Ford & K Park & S Sen, 2009. "All Work and No Play: Pecuniary Versus Non-Pecuniary Factors in the Labour Supply of the Elderly," Discussion Papers 09-08, Department of Economics, University of Birmingham.
    3. Tami Gurley-Calvez & Brian Hill, 2011. "Time to Retire? The Effect of State Fiscal Policies on Retirement Decisions," American Economic Review, American Economic Association, vol. 101(3), pages 35-39, May.

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    Keywords

    Aging; Labor Supply; Elderly; Taxes;
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