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The Labor Supply Effects of the Social Security Earnings Test

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  • Leora Friedberg

Abstract

The Social Security earnings test taxes away benefits at a 33%-50% rate once earnings pass a threshold amount. I investigate the response to three past changes in the earnings test rules, each applying to some age groups and not others. I find that beneficiaries bunch in substantial numbers just below the earnings threshold, and the bunching shifts when the earnings test rules change. These shifts in the budget constraint are incorporated into an econometric model to identify income and substitution effects. The estimation yields significant elasticities that suggest considerable deadweight loss suffered by working beneficiaries. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • 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.
    • Handle: RePEc:tpr:restat:v:82:y:2000:i:1:p:48-63
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    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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