Older Men's Earnings Tests and Work Activity

Abstract

It is widely held that removing the earnings test for old-age pensions under social security will increase labor force activity among persons aged 65-69. This study examines what happened to labor force participation rates of men in this age group following legislation that eliminated the test in Canada, liberalized it in Austria and the United Kingdom, and made it more restrictive in the Federal Republic of Germany. The consequences of a condition of total withdrawal for payment of pensions in Finland and modest increases in the ceiling level in the United States are also examined. The basic finding is that labor force participation rates of men aged 65-69 have not increased when earnings tests have been removed or liberalized. The experiences of all six countries indicate that the age of first eligibility and the level of benefits are more important than the earnings test in influencing the work activity of older men. The results of the study suggest that the trend toward early retirement is less likely to be affected by economic incentives characteristic of earnings tests and delayed retirement credits than by measures designed to make employment more responsive to individual needs.