The Effect of Part-Time Work on Wages: Evidence from the Social Security Rules

24 Pages Posted: 9 Jan 2002

See all articles by Daniel Aaronson

Daniel Aaronson

Federal Reserve Bank of Chicago

Eric French

Department of Economics; Institute for Fiscal Studies (IFS)

Date Written: December 2001

Abstract

This paper presents estimates of the part-time wage effect. It also shows that failure to account for the part-time wage effect leads to a downward biased estimate of labor supply elasticities of interest. Using three different datasets, we show that both work hours and wages drop sharply at ages 62 and 65. The Social Security rules produce strong incentives to reduce work hours at these ages. We present evidence that these sharp drops in work hours cause a drop in wages for men, although we find little evidence for a similar effect among women. Estimates indicate that, holding all else equal, cutting the workweek from 40 to 20 hours results in roughly a 25 percent wage penalty for male workers at these older ages. Given these estimates, the labor supply response to a tax change, for example, is downward biased by about 26 percent.

JEL Classification: C23, J22, J31

Suggested Citation

Aaronson, Daniel and French, Eric, The Effect of Part-Time Work on Wages: Evidence from the Social Security Rules (December 2001). FRB Chicago Working Paper No. 2001-20, Available at SSRN: https://ssrn.com/abstract=295562 or http://dx.doi.org/10.2139/ssrn.295562

Daniel Aaronson (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States

Eric French

Department of Economics ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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