Working Paper: NBER ID: w20562
Authors: Jeffrey B. Liebman; Erzo F.P. Luttmer
Abstract: The degree to which the Social Security tax distorts labor supply depends on the extent to which individuals perceive the link between current earnings and future Social Security benefits. Some Social Security reform plans have been motivated by an assumption that workers fail to perceive this link and that increasing the salience of the link could result in significant efficiency gains. To measure the perceived linkage between labor supply and Social Security benefits, we administered a survey to a representative sample of Americans aged 50-70. We find that the majority of respondents believe that their Social Security benefits increase with labor supply. Indeed, respondents generally report a link between labor supply and future benefits that is somewhat greater than the actual incentive. We also surveyed people about their understanding of various other provisions in the Social Security benefit rules. We find that some of these provisions (e.g., effects of delayed benefit claiming and rules on widow benefits) are relatively well understood while others (e.g., rules on spousal benefits, provisions on which years of earnings are taken into account) are less well understood. In addition, our survey incorporated a framing experiment, which shows that how the incentives for delayed claiming are presented has an impact on hypothetical claiming decisions. In particular, the traditional "break-even" framing used by the Social Security Administration leads to earlier claiming than other presentations do.
Keywords: Social Security; Labor Supply; Retirement; Incentives
JEL Codes: D83; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor supply (J20) | perceived social security benefits (H55) |
| presentation of information (Y10) | retirement claiming behavior (J26) |
| awareness of early retirement penalty (J26) | understanding of benefit increase (J32) |