The Perception of Social Security Incentives for Labor Supply and Retirement: The Median Voter Knows More than You'd Think

67 Pages Posted: 6 Oct 2014 Last revised: 7 Sep 2024

See all articles by Jeffrey B. Liebman

Jeffrey B. Liebman

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Erzo F. P. Luttmer

Dartmouth College; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: October 2014

Abstract

The degree to which the Social Security tax distorts labor supply depends on the extent to which individuals perceive the link between current earnings and future Social Security benefits. Some Social Security reform plans have been motivated by an assumption that workers fail to perceive this link and that increasing the salience of the link could result in significant efficiency gains. To measure the perceived linkage between labor supply and Social Security benefits, we administered a survey to a representative sample of Americans aged 50-70. We find that the majority of respondents believe that their Social Security benefits increase with labor supply. Indeed, respondents generally report a link between labor supply and future benefits that is somewhat greater than the actual incentive. We also surveyed people about their understanding of various other provisions in the Social Security benefit rules. We find that some of these provisions (e.g., effects of delayed benefit claiming and rules on widow benefits) are relatively well understood while others (e.g., rules on spousal benefits, provisions on which years of earnings are taken into account) are less well understood. In addition, our survey incorporated a framing experiment, which shows that how the incentives for delayed claiming are presented has an impact on hypothetical claiming decisions. In particular, the traditional "break-even" framing used by the Social Security Administration leads to earlier claiming than other presentations do.

Suggested Citation

Liebman, Jeffrey B. and Luttmer, Erzo F.P., The Perception of Social Security Incentives for Labor Supply and Retirement: The Median Voter Knows More than You'd Think (October 2014). NBER Working Paper No. w20562, Available at SSRN: https://ssrn.com/abstract=2505867

Jeffrey B. Liebman (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

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National Bureau of Economic Research (NBER)

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Erzo F.P. Luttmer

Dartmouth College ( email )

Department of Economics
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United States

National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Germany

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