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New evidence on earnings and benefit claims following the changes in the retirement earnings test in 2000. (Song & Manchester 2006)

Absence of conflict of interest.

Citation

Song, J. G., & Manchester, J. (2006). New evidence on earnings and benefit claims following the changes in the retirement earnings test in 2000. (ORES Working Paper 107). Washington, DC: Social Security Administration, Office of Policy, Office of Research, Evaluation, and Statistics. Also available in Journal of Public Economics, 91(3–4), 669–700 (2007).

Highlights

  • The study examined the impact of the Senior Citizens Freedom to Work Act of 2000 on employment, earnings, and public benefit receipt outcomes of workers ages 65 to 69.
  • The study was a nonexperimental analysis and used Social Security Administrative data to estimate the impacts.
  • The study found that the Senior Citizens Freedom to Work Act of 2000 was associated with significant increases in the rate of Social Security claims for both sets of individuals affected by the law. The study found no statistically significant relationship between the Senior Citizens Freedom to Work Act of 2000 and earnings.
  • The quality of casual evidence presented in this report for Social Security claims and earnings outcomes is moderate because it was based on a well-implemented nonexperimental design. This means we are somewhat confident that the estimated effects are attributable to the Senior Citizens Freedom to Work Act of 2000, but other factors might also have contributed. The quality of causal evidence presented in this report on employment is low because the authors did not ensure that the groups being compared were similar before the intervention. This means we are not confident that the estimated effects are attributable to the Senior Citizens Freedom to Work Act of 2000; other factors are likely to have contributed.

Intervention Examined

Senior Citizens Freedom to Work Act of 2000

Features of the Intervention

The Senior Citizens Freedom to Work Act of 2000, starting in 2000, eliminated the Social Security program’s earnings test for people older than the full retirement age (age 65) and allowed people ages 65 to 69 to defer benefits claiming and receive large benefits later. Before 2000, people eligible for Social Security retirement benefits who were ages 65 to 69 received decreased Social Security benefits if they earned more than the earnings test amount, and they were not permitted to defer benefits claiming. The benefits were reduced $1 for every $3 of income above the earnings test amount.

Features of the Study

The study is a nonexperimental analysis that examined differences in the rate of Social Security claims, employment, and annual earnings from 2000 to 2003. For each year, the authors used statistical models (difference-in-difference approach) to compare two groups of people who were affected by the Senior Citizens Freedom to Work Act of 2000 (those who turned 65 in that year and those 65 to 69) with people who were not affected by the law (those 62 to 64 and 70 to 72). The study sample included 1,369,819 people ages 62 to 72 who were eligible for Social Security and were not receiving Social Security Disability Insurance or Social Security retirement benefits. The study data came from the Social Security Administration’s 1 percent (active) sample, which tracks a random subsample of individuals who report earnings to the Social Security Administration.

Findings

The study found that the Senior Citizens Freedom to Work Act of 2000 was associated with the following outcomes:

Employment

  • The authors found no clear evidence of the effect of the test’s removal on the overall rate of labor force participation.

Earnings

  • The authors found no statistically significant relationship between the Senior Citizens Freedom to Work Act of 2000 and earnings.

Public Benefit Receipt

  • In each of the years, the authors found that Social Security claims for those ages 65 to 69 were significantly higher than claims among those were not affected by the law. Benefit claims were also significantly higher for those who turned 65 in each year compared with those not affected by the law.

Considerations for Interpreting the Findings

The study is a nonexperimental study that demonstrates the treatment and comparison groups had similar rates of Social Security claims and annual earnings before the intervention. There were, however, small pre-intervention trends between the treatment and comparison groups in their employment patterns.

Causal Evidence Rating

The quality of causal evidence presented in this report is moderate for Social Security claims and earnings outcomes because it was based on a well-implemented nonexperimental design. This means we are somewhat confident that the estimated effects are attributable to the Senior Citizens Freedom to Work Act of 2000, but other factors might also have contributed.

The quality of causal evidence presented in this report on employment is low because the authors did not ensure that the groups being compared were similar before the intervention. This means we are not confident that the estimated effects are attributable to the Senior Citizens Freedom to Work Act of 2000; other factors are likely to have contributed.

Reviewed by CLEAR

October 2019

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