Women and the Social Security Earnings Test

Abstract

In 2000, in an effort to encourage older individuals to continue to work, Congress removed the Social Security earnings test, which beneficiaries view as a tax on benefits, for beneficiaries who attained the Normal Retirement Age. Previous analysis on the effects of the Social Security earnings test has not addressed the effect on women, who are a significant proportion of all benefit types – comprising 57 percent of all beneficiaries over 62, 49 percent of primary beneficiaries, and 99 percent of spousal beneficiaries. After the removal of the earnings test, female primary beneficiaries increase average earnings and labor force participation. Female spousal beneficiaries, however, do not increase their average earnings or labor force participation. In addition, the removal of the earnings test also encourages all women to claim benefits at an earlier age. As suggested by Gruber and Orszag (2003), the incentive to claim benefits at a younger age may have an effect on the welfare of Social Security beneficiaries, possibly increasing the poverty among older individuals.

Keywords: Social Security, Women, Older Workers, Earnings Test, Taxation, Response to Taxation

JEL Classification: H55, J14, J16, H23, H24