Estimating Earnings Adjustment Frictions: Method and Evidence from the Social Security Earnings Test

Alexander Gelber (), Damon Jones and Daniel Sacks

No 19491, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We introduce a method for estimating the cost of adjusting earnings, as well as the earnings elasticity. Our method uses information on bunching in the earnings distribution at convex budget set kinks before and after policy-induced changes in the magnitude of the kinks: the larger is the adjustment cost, the smaller is the absolute change in bunching from before to after the policy change. In the context of the Social Security Earnings Test, our results demonstrate that the short-run impact of changes in the effective marginal tax rate can be substantially attenuated.

JEL-codes: H20 H31 J14 J26 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-dem, nep-lab and nep-lma
Note: AG EFG LS ME PE
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Citations: View citations in EconPapers (26)

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