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The effect of part-time work on wages: evidence from the Social Security rules

Daniel Aaronson and Eric French ()

No WP-01-20, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: This paper presents estimates of the part-time wage effect. It also shows that failure to account for the part-time wage effect leads to a downward biased estimate of labor supply elasticities of interest. Using three different datasets, we show that both work hours and wages drop sharply at ages 62 and 65. The Social Security rules produce strong incentives to reduce work hours at these ages. We present evidence that these sharp drops in work hours cause a drop in wages for men, although we find little evidence for a similar effect among women. Estimates indicate that, holding all else equal, cutting the workweek from 40 to 20 hours results in roughly a 25 percent wage penalty for male workers at these older ages. Given these estimates, the labor supply response to a tax change, for example, is downward biased by about 26 percent.

Keywords: Wages; Social security; Labor supply (search for similar items in EconPapers)
Date: 2001, Revised 2001
New Economics Papers: this item is included in nep-pke
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Journal Article: The Effect of Part-Time Work on Wages: Evidence from the Social Security Rules (2004) Downloads
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