Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age

59 Pages Posted: 22 Dec 2010

See all articles by Luc Behaghel

Luc Behaghel

Paris School of Economics; National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

David M. Blau

Ohio State University (OSU) - Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2010

Abstract

We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two month increments per year of birth for cohorts born from 1938 to 1943. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment are less clear-cut, but go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion. We develop a simple labor supply model with reference dependence that can explain the results. The model has potentially important implications for framing of future Social Security reforms.

JEL Classification: J26

Suggested Citation

Behaghel, Luc and Blau, David M., Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age (December 1, 2010). Michigan Retirement Research Center Research Paper No. 2010-243, Available at SSRN: https://ssrn.com/abstract=1729278 or http://dx.doi.org/10.2139/ssrn.1729278

Luc Behaghel (Contact Author)

Paris School of Economics ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

David M. Blau

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
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Columbus, OH 43210-1172
United States

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