Absence of conflict of interest.
Citation
Engelhardt, G. V., & Kumar, A. (2009). The repeal of the retirement earnings test and the labor supply of older men. Journal of Pension Economics & Finance, 8(4), 429-450.
Highlights
- The study examined the impact of the repeal of the earnings test under the Senior Citizens Freedom to Work Act of 2000 on the labor supply and earnings of older men ages 62 to 72.
- The authors used a nonexperimental approach and data from the Health and Retirement Study to compare labor force participation, annual hours of work, retirement behavior, and earnings of men who were and were not subject to the repeal of the earnings test.
- The study found that the policy change was associated with a significant increase in older men’s average annual hours of work. The policy change was also associated with a change in the distribution of real earnings in that a smaller proportion of older men had earnings at or below the earnings test threshold.
- The quality of causal evidence presented in this report 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
A key feature of Social Security is the retirement earnings test, which makes reduce benefits in relation to the full retirement age (age 65). Before 2000, the earnings test reduced benefits $1 for each $2 of annual earnings over the exempt amount for beneficiaries younger than 65. For those ages 65 to 69, the earnings test reduced benefits $1 for each $3 of annual earnings over the exempt amount. The 2000 act abolished the earnings test for those ages 65 to 69.
Features of the Study
The authors used regression analyses to compare employment outcomes for older men who were and were not subject to the earnings test, controlling for year of birth and demographic characteristics. The sample included 8,367 person-month observations from 3,765 men ages 62 to 72. The authors also compared the real earnings distributions before and after 2000 among men ages 65 to 70. They used 1996 to 2010 data from the Health and Retirement Study, a biennial household survey.
Findings
Employment
- The act was associated with a significant increase in older men’s average annual hours of work.
- The act was not associated with significant changes in whether older men worked at all or reported being partially or fully retired.
Earnings
- The act was associated with a change in the distribution of real earnings in that a smaller proportion of older men had earnings at or below the earnings test threshold.
Considerations for Interpreting the Findings
The authors did not show the groups were comparable in terms of pre-intervention outcomes or account for potential existing differences in these outcomes between the groups. These existing differences between the groups—and not the repeal of the earnings test —could explain the observed differences in outcomes.
Causal Evidence Rating
The quality of causal evidence presented in this report 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.