Labor supply responses to marginal Social Security benefits: Evidence from discontinuities

Jeffrey Liebman (), Erzo Luttmer and David G. Seif

Journal of Public Economics, 2009, vol. 93, issue 11-12, 1208-1223

Abstract: A key question for Social Security reform is whether workers respond to the link on the margin between the Social Security taxes they pay and the Social Security benefits they will receive. We estimate the effects of the marginal Social Security benefits that accrue with additional earnings on three measures of labor supply: retirement age, hours, and labor earnings. We develop a new approach to identifying these incentive effects by exploiting five provisions in the Social Security benefit rules that generate discontinuities in marginal benefits or non-linearities in marginal benefits that converge to discontinuities as uncertainty about the future is resolved. We find that individuals approaching retirement (age 52 and older) respond to the Social Security tax-benefit link on the extensive margin of their labor supply decisions: we estimate that a 10% increase in the net-of-tax share reduces the two-year retirement hazard by a statistically significant 2.0 percentage points from a base rate of 15%. The evidence with regard to labor supply responses on the intensive margin is more mixed: we estimate that the elasticity of hours with respect to the net-of-tax share is 0.42 and statistically significant, but we do not find a statistically significant earnings elasticity. Though we lack statistical power to estimate results within subsamples precisely, the retirement response is driven mostly by the female subsample, while the hours response comes from the male subsample.

Keywords: Social; security; Discontinuity; Labor; supply; Retirement; Tax-benefit; link (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (100)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0047-2727(09)00088-7
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Labor Supply Responses to Marginal Social Security Benefits: Evidence from Discontinuities (2009)
Working Paper: Labor Supply Responses to Marginal Social Security Benefits: Evidence from Discontinuities (2009)
Working Paper: Labor Supply Responses to Marginal Social Security Benefits: Evidence from Discontinuities (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:93:y:2009:i:11-12:p:1208-1223

Access Statistics for this article

Journal of Public Economics is currently edited by R. Boadway and J. Poterba

More articles in Journal of Public Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().