Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt?

Center for Retirement Research at Boston College, 2000

Posted: 9 Mar 2010

See all articles by Jonathan Gruber

Jonathan Gruber

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Peter R. Orszag

Lazard Asset Management

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2000

Abstract

On April 7, 2000, President Clinton signed into law the "Senior Citizens Freedom to Work Act of 2000," which eliminated the unpopular earnings test that applied to those over the Social Security normal age of retirement (currently age 65). The earnings test, a version of which still applies to those ages 62-64, reduces immediate payments to beneficiaries whose labor income exceeds a given threshold. Although benefits are subsequently increased to compensate for any such reduction, the earnings test is typically viewed as a tax on working. As a result, it is commonly viewed as an important disincentive to paid work for older Americans. For example, when President Clinton signed the legislation that removed the earnings test for beneficiaries at or above the normal retirement age, he noted, "because of the Social Security retirement earnings test, the system withholds benefits from over 800,000 older working Americans and discourages countless more - no one knows how many - from actually seeking work." Similarly, Alan Greenspan recently stated that with the elimination of the earning test, "the presumption, of course, is that you'll get an increase in the number of retired people coming back into the work force."...

Suggested Citation

Gruber, Jonathan and Orszag, Peter R., Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt? (November 1, 2000). Center for Retirement Research at Boston College, 2000. Available at SSRN: https://ssrn.com/abstract=1127358

Jonathan Gruber (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Peter R. Orszag

Lazard Asset Management ( email )

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