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Social Security, Earnings Tests, and Age at Retirement

Author

Listed:
  • Gary Burtless

    (Brookings Institution)

  • Robert A. Moffitt

    (Brown University)

Abstract

The effect of a Social Security system on the decision to retire is a matter of considerable controversy. Among the aspects of such systems causing debate have been the existence and effects of imperfect capital markets, the purported incentives embodied in "earnings tests, "the degree of actuarial fairness in such systems, and the degree to which incentives increase or decrease at certain critical ages (62 and 65 in the United States). The present article contains an analysis of the retirement decision that illuminates many of these issues and provides new insights into the effects of Social Security on retirement. Using a straightforward labor-leisure model and associated analytical diagrams, the article shows the labor-supply effect of actuarial unfairness in the benefit formula, the impact of an earnings test in causing workers to postpone retire ment (thus increasing lifetime labor supply), and the impact of imperfect capital markets on the timing of retirement.

Suggested Citation

  • Gary Burtless & Robert A. Moffitt, 1986. "Social Security, Earnings Tests, and Age at Retirement," Public Finance Review, , vol. 14(1), pages 3-27, January.
    • Handle: RePEc:sae:pubfin:v:14:y:1986:i:1:p:3-27
    DOI: 10.1177/109114218601400101
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    References listed on IDEAS

    as
    1. Burtless, Gary & Moffitt, Robert A, 1985. "The Joint Choice of Retirement Age and Postretirement Hours of Work," Journal of Labor Economics, University of Chicago Press, vol. 3(2), pages 209-236, April.
    2. Mitchell, Olivia S & Fields, Gary S, 1984. "The Economics of Retirement Behavior," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 84-105, January.
    3. A. Zabalza & C. Pissarides & M. Barton, 1980. "Social Security and the Choice between Full-time Work, Part-time Work and Retirement," NBER Chapters, in: Econometric Studies in Public Finance, pages 245-276, National Bureau of Economic Research, Inc.
    4. Sheshinski, Eytan, 1978. "A model of social security and retirement decisions," Journal of Public Economics, Elsevier, vol. 10(3), pages 337-360, December.
    5. Jerry A. Hausman, 1980. "The Effect of Wages, Taxes, and Fixed Costs on Women's Labor Force Participation," NBER Chapters, in: Econometric Studies in Public Finance, pages 161-194, National Bureau of Economic Research, Inc.
    6. Anthony J. Pellechio, 1981. "Social Security and the Decision to Retire," NBER Working Papers 0734, National Bureau of Economic Research, Inc.
    7. Vincent P. Crawford & David M. Lilien, 1981. "Social Security and the Retirement Decision," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 96(3), pages 505-529.
    8. John B. Burbidge & A. Leslie Robb, 1980. "Pensions and Retirement Behaviour," Canadian Journal of Economics, Canadian Economics Association, vol. 13(3), pages 421-437, August.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. James H. Stock & David A. Wise, 1990. "The Pension Inducement to Retire: An Option Value Analysis," NBER Chapters, in: Issues in the Economics of Aging, pages 205-230, National Bureau of Economic Research, Inc.
    2. Tetsuji Yamada & Tadashi Yamada, 1987. "Social Security and Earlier Retirement in Japan: Cross-Sectional Evidence," NBER Working Papers 2442, National Bureau of Economic Research, Inc.
    3. Laurence J. Kotlikoff & David A. Wise, 1988. "Pension Backloading, Wage Taxes, and Work Disincentives," NBER Chapters, in: Tax Policy and the Economy: Volume 2, pages 161-196, National Bureau of Economic Research, Inc.
    4. Michael D. Hurd, 1989. "Issues and Results from Research on the Elderly I: Economic Status (Part I of III Parts)," NBER Working Papers 3018, National Bureau of Economic Research, Inc.
    5. Zweimuller, Josef, 1992. "Partial Retirement and the Earnings Test," Institute for Research on Labor and Employment, Working Paper Series qt1gq8c1t2, Institute of Industrial Relations, UC Berkeley.
    6. Michael D. Hurd, 1993. "The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers," NBER Working Papers 4462, National Bureau of Economic Research, Inc.
    7. M. Solaiman Miah & Virginia Wilcox-Gok, 2007. "Do the sick retire early? Chronic illness, asset accumulation and early retirement," Applied Economics, Taylor & Francis Journals, vol. 39(15), pages 1921-1936.
    8. B. Douglas Bernheim, 1989. "The Timing of Retirement: A Comparison of Expectations and Realizations," NBER Chapters, in: The Economics of Aging, pages 335-358, National Bureau of Economic Research, Inc.
    9. Jonathan Gruber, 1999. "Social Security and Retirement in Canada," NBER Chapters, in: Social Security and Retirement around the World, pages 73-99, National Bureau of Economic Research, Inc.
    10. Josef Zweimüller, 1993. "Partial retirement and the earnings test," Journal of Economics, Springer, vol. 57(3), pages 295-303, October.
    11. Peter Diamond & Jonathan Gruber, 1997. "Social Security and Retirement in the U.S," NBER Working Papers 6097, National Bureau of Economic Research, Inc.
    12. Courtney C. Coile, 2015. "Economic Determinants Of Workers’ Retirement Decisions," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 830-853, September.
    13. Estelle James & Alejandra Cox Edwards, 2005. "Do Individual Accounts Postpone Retirement: Evidence from Chile," Working Papers wp098, University of Michigan, Michigan Retirement Research Center.
    14. Philip Armour & Angela A. Hung, 2017. "Drawing Down Retirement Wealth Interactions between Social Security Wealth and Private Retirement Savings," Working Papers WR-1165, RAND Corporation.
    15. Baker, Michael & Benjamin, Dwayne, 1999. "Early Retirement Provisions and the Labor Force Behavior of Older Men: Evidence from Canada," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 724-756, October.

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