New Evidence on Earnings and Benefit Claims Following Changes in the Retirement Earnings Test in 2000

Abstract

This paper examines the labor force activity and timing of benefit claims of workers aged 65-69 in response to the removal of the retirement earnings test in 2000. We use the 1 percent sample of longitudinal Social Security administrative data that covers the period from 4 years before to 4 years after the removal of the test. Using a reduced-form quantile regression method, we find that effects on earnings are limited to workers with earnings just around the test threshold and above, as predicted by economic theory. Our estimated effects suggest that labor supply elasticities with respect to the net-of-tax rate are approximately 0.05-0.07 for working primary beneficiaries aged 65-69 whose earnings are between the median and the 80th percentile. Further, results show that applications for Social Security benefits following the earnings test removal accelerated by 2 to 5 percentage points among individuals aged 65-69 and by 3 to 7 percentage points among those reaching age 65.

Keywords: Social Security administrative data, earnings, benefit entitlement,difference-in-difference, quantile regression

JEL Classification: J14, H55