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The Labor Supply Effects of the Social Security Earnings Test

Listed author(s):
  • Leora Friedberg

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

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/003465300558623
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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 82 (2000)
Issue (Month): 1 (February)
Pages: 48-63

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Handle: RePEc:tpr:restat:v:82:y:2000:i:1:p:48-63
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  1. COILE, Courtney & DIAMOND, Peter & GRUBER, Jonathan & JOUSTEN, Alain, 2000. "Delays in claiming social security benefits," CORE Discussion Papers 2000029, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. J. Hausman, 1979. "The Effect of Wages, Taxes and Fixed Costs on Women's Labor Force Participation," Working papers 238, Massachusetts Institute of Technology (MIT), Department of Economics.
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  4. James J. Heckman & Thomas E. MaCurdy, 1982. "New Methods for Estimating Labor Supply Functions: A Survey," NBER Working Papers 0858, National Bureau of Economic Research, Inc.
  5. Card, David, 1990. "Labor supply with a minimum hours threshold," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 33(1), pages 137-168, January.
  6. Burtless, Gary & Moffitt, Robert A, 1985. "The Joint Choice of Retirement Age and Postretirement Hours of Work," Journal of Labor Economics, University of Chicago Press, vol. 3(2), pages 209-236, April.
  7. Blomquist, S. & Newey, W., 1997. "Nonparametric Estimation of Labor Supply Functions Generated by Piece Wise Linear Budget Constraints," Papers 1997-24, Uppsala - Working Paper Series.
  8. Bruce D. Meyer, 1994. "Natural and Quasi- Experiments in Economics," NBER Technical Working Papers 0170, National Bureau of Economic Research, Inc.
  9. Soren Blomquist & Whitney Newey, 1999. "Nonparametric Estimation with Nonlinear Budget Sets," Working papers 99-03, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Richard Blundell & Alan Duncan & Costas Meghir, 1995. "Estimating labour supply responses using tax reforms," IFS Working Papers W95/07, Institute for Fiscal Studies.
  11. 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 412-437, October.
  12. Cordelia Reimers & Marjorie Honig, 1996. "Responses to Social Security by Men and Women: Myopic and Far-Sighted Behavior," Journal of Human Resources, University of Wisconsin Press, vol. 31(2), pages 359-382.
  13. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
  14. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
  15. Leora Friedberg, 1998. "The Social Security Earnings Test and Labor Supply of Older Men," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 121-150 National Bureau of Economic Research, Inc.
  16. repec:hoo:wpaper:e-90-11 is not listed on IDEAS
  17. 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.
  18. Gustman, Alan L & Steinmeier, Thomas L, 1986. "A Structural Retirement Model," Econometrica, Econometric Society, vol. 54(3), pages 555-584, May.
  19. Altonji, Joseph G & Paxson, Christina H, 1988. "Labor Supply Preferences, Hours Constraints, and Hours-Wage Trade-Offs," Journal of Labor Economics, University of Chicago Press, vol. 6(2), pages 254-276, April.
  20. Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, vol. 49(4), pages 945-963, June.
  21. Ruhm, Christopher J, 1990. "Bridge Jobs and Partial Retirement," Journal of Labor Economics, University of Chicago Press, vol. 8(4), pages 482-501, October.
  22. MaCurdy, Thomas, 1992. "Work Disincentive Effects of Taxes: A Reexamination of Some Evidence," American Economic Review, American Economic Association, vol. 82(2), pages 243-249, May.
  23. Blomquist, N.S., 1992. "Estimation Methods for Male Labor Supply Functions: How to take Account to Taxes," Papers 1992-7, Uppsala - Working Paper Series.
  24. Alan L. Gustman & Thomas L. Steinmeier, 1991. "Changing the Social Security Rules for Work after 65," ILR Review, Cornell University, ILR School, vol. 44(4), pages 733-745, July.
  25. Richard V. Burkhauser, 1980. "The Early Acceptance of Social Security: An Asset Maximization Approach," ILR Review, Cornell University, ILR School, vol. 33(4), pages 484-492, July.
  26. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September.
  27. Moffitt, Robert, 1986. "The Econometrics of Piecewise-Linear Budget Constraints: A Survey and Exposition of the Maximum Likelihood Method," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(3), pages 317-328, July.
  28. Blomquist, Soren, 1995. "Restrictions in labor supply estimation: Is the MaCurdy critique correct?," Economics Letters, Elsevier, vol. 47(3-4), pages 229-235, March.
  29. repec:fth:prinin:262 is not listed on IDEAS
  30. Reimers, Cordelia & Honig, Marjorie, 1993. "The Perceived Budget Constraint under Social Security: Evidence from Reentry Behavior," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 184-204, January.
  31. Martin Feldstein, 1983. "Behavioral Simulation Methods in Tax Policy Analysis," NBER Books, National Bureau of Economic Research, Inc, number feld83-2.
  32. Hanoch, Giora & Honig, Marjorie, 1983. "Retirement, Wages, and Labor Supply of the Elderly," Journal of Labor Economics, University of Chicago Press, vol. 1(2), pages 131-151, April.
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