Taxes, Wages, and the Labor Supply of Older Americans

34 Pages Posted: 21 Feb 2008

See all articles by Lucie Schmidt

Lucie Schmidt

Smith College; National Bureau of Economic Research (NBER)

Purvi Sevak

University of Michigan at Ann Arbor - Mathematica Policy Research

Date Written: November 2006

Abstract

The aging of the U.S. population, combined with an increasing probability that any given older individual will work, means that the importance of older workers to the labor force is rising. One possible solution to the solvency problems facing the Social Security System is increasing the labor supply of older workers. Understanding how policy levers can affect the labor supply of the elderly therefore has become increasingly important. In this paper we use data from the Health and Retirement Study (HRS), linked to state identifiers, to estimate the responsiveness of the labor supply of older workers to features of the tax code, on both the extensive margin of participation and the intensive margin of hours of work. This unique data set allows us to avoid some of the traditional pitfalls associated with the labor supply literature. We find evidence that the labor supply of older workers is responsive to the tax structure. Our results suggest that government policies could play a role in increasing the labor supply of individuals over the age of 65 by changing the returns to work through the tax code.

Suggested Citation

Schmidt, Lucie and Sevak, Purvi, Taxes, Wages, and the Labor Supply of Older Americans (November 2006). Michigan Retirement Research Center Research Paper No. WP 2006-139, Available at SSRN: https://ssrn.com/abstract=1095296 or http://dx.doi.org/10.2139/ssrn.1095296

Lucie Schmidt (Contact Author)

Smith College ( email )

Northampton, MA 01060
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Purvi Sevak

University of Michigan at Ann Arbor - Mathematica Policy Research ( email )

Ann Arbor, MI 481030
United States

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