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Earnings Responses to Social Security Contributions: Evidence from Older Workers in Canada

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  • Adam M. Lavecchia
  • James Stutely

Abstract

This paper documents sharp bunching in third-party reported employment earnings at a basic exemption for social security contributions among older workers. Beginning in 2012, workers age 60-64 who were receiving a public pension were required to make social security contributions equal to 9.9 percent of their employment earnings above a basic exemption threshold of $3,500. Using administrative data on third-party reported earnings and a differences-in-bunching estimator we document sharp bunching at the $3,500 threshold. We argue that our results represent new evidence on the role of firms in mediating the earnings response to payroll taxes.

Suggested Citation

  • Adam M. Lavecchia & James Stutely, 2025. "Earnings Responses to Social Security Contributions: Evidence from Older Workers in Canada," Department of Economics Working Papers 2025-07, McMaster University.
    • Handle: RePEc:mcm:deptwp:2025-07
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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