The repeal of the retirement earnings test and the labor supply of older men

Abstract

This paper examines the impact of the Senior Citizens Freedom to Work Act of 2000, which abolished the Social Security retirement earnings test for those aged 65-69, on the labor supply of older men using data from the 1996-2004 waves of the Health and Retirement Study (HRS). Based on reduced-form specifications, we find that the repeal of the earnings test increased labor supply on the intensive margin by 12-17%, the bulk of which was concentrated among men with a high-school degree, whose labor supply rose by 19-26%. We formulate a unique test for endogenous reporting of health status by examining how reported health changes with the repeal of the earnings test. We find some evidence of endogenous self-reported health status. In particular, older men were substantially less likely to have reported that health limits their ability to work after, relative to before the earnings test repeal, with the bulk of the effect concentrated among men with high-school degrees, who had the largest labor-supply response to the repeal.