The Labour Supply Effect of the Abolition of the Earnings Rule for Older Workers in the United Kingdom

17 Pages Posted: 28 Dec 2002

See all articles by Richard F. Disney

Richard F. Disney

University of Nottingham; Institute for Fiscal Studies (IFS); Axia Economics

Sarah Smith

University of Bristol; Institute for Fiscal Studies (IFS)

Abstract

High effective tax rates on work at and around state pension age deter participation. An example is the 'earnings test' operating in several OECD countries. The United States abolished its test for the 65+ age group in 2000. The United Kingdom offers a 'natural experiment' of this reform, as it abolished its test, known as the 'earnings rule', in 1989. We examine the effect of this change, taking account of the opportunity to defer pension rights. Abolition of the rule raised working hours of older male workers by around 4 hours a week, with a lesser impact on women's behaviour.

Suggested Citation

Disney, Richard F. and Smith, Sarah, The Labour Supply Effect of the Abolition of the Earnings Rule for Older Workers in the United Kingdom. Economic Journal, Vol. 112, pp. C136-C152, 2002. Available at SSRN: https://ssrn.com/abstract=312202

Richard F. Disney (Contact Author)

University of Nottingham ( email )

School of Economics
Nottingham NG7 2RD
United Kingdom
+44 115 951 5620 (Phone)
+44 115 951 4159 (Fax)

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Axia Economics ( email )

38 Concanon Road
London SW2 5TA
United Kingdom

Sarah Smith

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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