Social Security and Labor Supply Incentives

17 Pages Posted: 4 Jul 2004 Last revised: 13 Sep 2010

See all articles by Roger H. Gordon

Roger H. Gordon

University of California, San Diego (UCSD) - Department of Economics; Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: September 1982

Abstract

Many provisions of the Social Security Program distort an individual's labor supply incentives. In particular, the payroll tax, the earnings test, the offsetting actuarial adjustment, and the dependence of the size of future benefits on the level of current earnings all affect the net return to extra work. The purpose of this paper is to estimate the size of the net tax rate on labor income in a variety of circumstances, taking into account all these provisions, as well as the personal income tax. We find that the Social Security Program on net in the past has provided a large subsidy to labor supply, which for many people effectively offset the personal income tax. This subsidy rate, however, has been declining steadily over time.

Suggested Citation

Gordon, Roger H., Social Security and Labor Supply Incentives (September 1982). NBER Working Paper No. w0986. Available at SSRN: https://ssrn.com/abstract=302565

Roger H. Gordon (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

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Harvard University - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

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