The Effect of Abolishing the Earnings Test on Labor Market Behavior Before Age 65

Published: 2006
Project ID: UM06-13


This proposal takes a dynamic approach to analyze the effect of eliminating the earnings test on retirement expectations and labor supply of those younger than 65. Prior studies have only examined this question for 65-70 year olds, and in a static context. Using the HRS and linked Social Security earnings records, this project will look at the effect of elinimation of the earnings test on several variables concerning retirement expectations before age 60 and on actual labor force participation after age 60. It will also analyze to what extent deviations between expected retirement and actual retirement can be ascribed to the reform. Changes in expectations will reflect whether people anticipate the consequences of the reform for their future retirement behavior, which is important for adequate retirement planning. It may be that incentives for working after age 65 also create an incentive to keep working at an earlier age, due, for example, to the costs of labor market entry and exit.