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ERIC Number: EJ765852
Record Type: Journal
Publication Date: 2007
Pages: 29
Abstractor: Author
Reference Count: 37
ISBN: N/A
ISSN: ISSN-0276-8739
The Social Security Earnings Test and Work Incentives
Benitez-Silva, Hugo; Heiland, Frank
Journal of Policy Analysis and Management, v26 n3 p527-555 Sum 2007
The labor supply and benefit claiming incentives provided by the early retirement rules of the Social Security Old Age benefits program are of growing importance as the Normal Retirement Age (NRA) increases to 67, the labor force participation of Older Americans rises, and a variety of reforms to the Social Security system are considered. Any reform needs to take into account the effects and rationale of the Social Security Earnings Test and the Actuarial Adjustment Factor, which are likely to be widely misunderstood due to the relatively little attention paid by policymakers and researchers to the fact that Americans are willing to work while receiving benefits. The authors describe these incentives and emphasize that individuals who claim benefits before the NRA but continue to work, or return to the labor force, can reduce the early retirement penalty by suspending the collection of monthly benefits if they earn above the Earnings Test limit. They then argue that the Earnings Test can be distortionary and is costly to administer, and that these characteristics are inflated by the lack of information given to Older Americans regarding the consequences of working while receiving retirement benefits. The authors present results from statistical models of labor force exit behavior using data from the Health and Retirement Study showing the relevance of these incentives, and investigate the importance of informational asymmetries among beneficiaries regarding benefit withholding using a dynamic life-cycle model of labor supply and benefit claiming. They then use the latter framework to compare the behavioral and welfare implications of a removal of the Earnings Test to the policy of providing more information regarding the Earnings Test and the adjustment of the rate of benefit pay to Older Americans. (Contains 5 tables, 1 figure and 13 footnotes.)
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Publication Type: Journal Articles; Reports - Descriptive
Education Level: N/A
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A
Identifiers - Laws, Policies, & Programs: Social Security