Persistence in Labor Supply and the Response to the Social Security Earnings Test

Center for Retirement Research at Boston College Working Paper No. CRR WP 2006-27

38 Pages Posted: 13 Nov 2008

See all articles by Leora Friedberg

Leora Friedberg

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

Anthony Webb

Boston College - Center for Retirement Research

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2006

Abstract

This paper investigates the impact on labor supply of changes in the Social Security earnings test in 1996 and 2000. We highlight how the persistence of labor supply choices influences both responses to policy changes and the estimation of such responses. We do this in two ways. First, we use data from the Health and Retirement Study and the Current Population Survey that allows us to compare employment transitions across cohorts that are differentially affected by changes in the earnings test rules. We show that conditioning on last year's employment status is important in identifying responses to current earnings test changes. Second, we test the effect of not only current but also anticipated as well as past earnings test parameters which cohorts faced at earlier ages. We find that past and anticipated future rules influence current employment and earnings. Our results help to identify an effect of earnings test changes affecting ages 65-69 on employment at younger and older ages, which suggests caution about the use of neighboring age groups as control groups in analyzing responses to the earnings test. We also show that earnings test changes that were initiated in 1996 had an important effect, in addition to the changes in 2000 that have been extensively studied.

Suggested Citation

Friedberg, Leora and Webb, Anthony, Persistence in Labor Supply and the Response to the Social Security Earnings Test (December 1, 2006). Center for Retirement Research at Boston College Working Paper No. CRR WP 2006-27. Available at SSRN: https://ssrn.com/abstract=1299700 or http://dx.doi.org/10.2139/ssrn.1299700

Leora Friedberg (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States
804-924-3225 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Anthony Webb

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States

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