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Taxes, Wages, and the Labor Supply of Older Americans

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  • Lucie Schmidt

    (Williams College)

  • Purvi Sevak

    (Hunter College)

Abstract

The aging of the U.S. population, combined with an increasing probability that any given older individual will work, means that the importance of older workers to the labor force is rising. One possible solution to the solvency problems facing the Social Security System is increasing the labor supply of older workers. Understanding how policy levers can affect the labor supply of the elderly therefore has become increasingly important. In this paper we use data from the Health and Retirement Study (HRS), linked to state identifiers, to estimate the responsiveness of the labor supply of older workers to features of the tax code, on both the extensive margin of participation and the intensive margin of hours of work. This unique data set allows us to avoid some of the traditional pitfalls associated with the labor supply literature. We find evidence that the labor supply of older workers is responsive to the tax structure. Our results suggest that government policies could play a role in increasing the labor supply of individuals over the age of 65 by changing the returns to work through the tax code.

Suggested Citation

  • Lucie Schmidt & Purvi Sevak, 2006. "Taxes, Wages, and the Labor Supply of Older Americans," Working Papers wp139, University of Michigan, Michigan Retirement Research Center.
    • Handle: RePEc:mrr:papers:wp139
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    References listed on IDEAS

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    2. J L Ford & K Park & S Sen, 2009. "All Work and No Play: Pecuniary Versus Non-Pecuniary Factors in the Labour Supply of the Elderly," Discussion Papers 09-08, Department of Economics, University of Birmingham.
    3. Tami Gurley-Calvez & Brian Hill, 2011. "Time to Retire? The Effect of State Fiscal Policies on Retirement Decisions," American Economic Review, American Economic Association, vol. 101(3), pages 35-39, May.

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