Earnings Test Research Articles

Impact of eliminating retirement earnings test on labor supply and pension benefit claims.

This study explores the hypothetical elimination of Japan's retirement earnings test (ET) for public pensions, focusing on its implications for older workers' labor supply and pension-claiming behaviors. The ET currently reduces public pension benefits for individuals aged 65 and older if their earnings exceed specified thresholds, potentially discouraging employment in this demographic. Notably, the Japanese ET influences both immediate and future pension benefits, thus diminishing current payouts for working pensioners and foregoing beneficial actuarial adjustments-adjustments based on actuarial calculations that would otherwise increase future benefits to account for delayed pension claims. This dual impact may discourage the labor supply and influence pension-claiming behavior among older workers. Through a survey-based experiment with male workers aged 40-59 years expected to face the ET upon retirement, we assess three reform scenarios as the first study in the literature: (1) eliminating future benefit reductions through actuarial adjustments, thereby enhancing the value of deferred pension claims; (2) removing immediate benefit suspensions to increase current pension payments directly; and (3) a comprehensive reform combining both approaches. Our findings reveal that eliminating reductions through actuarial adjustments increases the intensive margin (labor hours and income) and encourages delayed pension claims. Conversely, removing immediate benefit suspensions influences both the extensive margin (decision to work) and the intensive margin but leads to earlier pension claims. By highlighting the importance of differentiating between immediate and future benefit components in designing ET reforms, this study demonstrates their significant impact on labor supply and pension-claiming decisions.

Pengaruh Motivasi Dan Disiplin Kerja Terhadap Kinerja Karyawan Di Kantor Imigrasi Kelas I Non Tpi Depok

Employee motivation and discipline play an important role in increasing the efficiency and effectiveness of a company. An employee who has high discipline and motivation will be able to carry out his duties properly and optimally, so that the company's employee performance targets can be achieved. This study aims to examine the correlation between individual motivational factors and employee discipline on employee performance by using the SPSS version 25 program at the Immigration Office Class I Non Tpi Depok. Existing data in this study were taken using the method of documentation, observation, distribution of questionnaires or questionnaires, and interviews. This study uses a quantitative method because it focuses on measurements and samples to test variables and hypotheses. Several tests were carried out using the SPSS program, including the Validity Test, Earnings Test, Normality Test, Multicollinearity Union, Heteroscedasticity Test, Autocorrelation Test, Correlation Coefficient, Determination Coefficient, Multiple Linear Regression Coefficient, T Test, and F Test. The results of the tests This shows that there is a positive relationship between motivation and work discipline on employee performance at the Immigration Office Class I Non TPI Depok.

ACCOUNTING FOR SOCIAL SECURITY CLAIMING BEHAVIOR

AbstractWe study why Social Security benefit claiming is concentrated at two ages, 62 and the full retirement age, and provide three main findings. First, we show that claiming behavior can be well explained by a parsimonious life‐cycle model with fully rational agents. The two key mechanisms are (i) the strong unwillingness to hold annuities and (ii) the effects of the earnings test. Second, we show that current rules distort claiming and labor supply decisions, and eliminating these distortions results in large welfare gains. Finally, we show that claiming decisions can be used to sharpen the identification of important preference parameters.

Minimum wages, retirement timing, and labor supply

We find that minimum wage increases lead to increased employment for low-wage, retirement-age individuals using survey data linked to several decades of individual-level IRS and SSA data. Own-wage elasticity estimates of the employment effect are larger than normal for the minimum wage literature but are consistent with recent evidence on labor supply effects of minimum wages and life-cycle models of labor supply. We also find evidence of delayed permanent employment exit and delayed retirement benefit claiming. The delay in benefit claiming appears to be driven by an interaction between minimum wages and the Social Security earnings test. These results suggest that retirement-age individuals are very responsive to changes in labor market opportunities and that minimum wages may complement Social Security incentives that encourage more work and delayed benefit claiming.

Is it Worth Getting a Doctorate?

PhD training is part of the global education competition. The number of doctoral students per 100,000 people is a feature that moves together with the scientific performance of a country. Thus, doctoral training is an important element of a country’s innovation, in which Hungary is lagging behind. We assume that the main reason for the limited amount of doctoral students in Hungary is the low level of individual demand for training which, in turn, is due to the fact that the academic career of doctoral students promises low earnings compared to the placement of university graduates in other spheres. The earnings test and life earnings analysis presented by the study support this assumption: the earnings of those entering academically qualified academic careers are significantly lower than those of graduates working in the corporate sector. Though there are limitations present which impede the generalizability of these results, it does call to attention important trends to be acknowledged in future research.

The optimal earnings test and retirement behavior

The optimal earnings test and retirement behavior

Using Nonlinear Budget Sets to Estimate Extensive Margin Responses: Method and Evidence from the Earnings Test

We estimate the impact of the Social Security Annual Earnings Test (AET) on older workers’ employment. The AET reduces social security claimants’ current benefits in proportion to their earnings in excess of an exempt amount. Using a regression kink design and Social Security Administration data, we document that the discontinuous change in the benefit reduction rate at the exempt amount causes a corresponding change in the slope of the employment rate, suggesting that the extensive margin of labor supply is more sensitive to this policy than commonly thought. We develop a model and method that allow us to translate the behavioral responses into a lower bound estimate of 0.49 for the extensive margin elasticity, which implies more than a 1 percentage point increase in work in the absence of the AET. (JEL H55, J14, J22, J26, J31)

Pension reform and the efficiency-equity trade-off: Impacts of removing an early retirement subsidy

We provide empirical evidence that the removal of work disincentives embedded in retirement earnings tests can increase old-age labor supply considerably, but it does so at the cost of more income inequality. To identify causal effects, we exploit a reform of the Norwegian early retirement program, which entailed that adjacent birth cohorts faced completely different work incentives from the age of 62. The reform removed a strict retirement earnings test such that pension wealth was redistributed from early to late retirees. Given pre-existing employment and earnings patterns, this implied a considerable rise in old-age income inequality. In theory, this direct increase in inequality could be either amplified or offset by changes in labor supply. We estimate that the reform triggered a 42% increase in average hours worked during the period covered by early retirement options; however, as labor supply responses were of similar magnitudes across the earnings distribution, they did little to modify the rise in inequality. As measured by the Gini coefficient, inequality in overall old-age income rose by approximately 0.03 (21%).

Joint Retirement in Couples: Evidence of Complementarity in Leisure*

AbstractIn this paper, I examine leisure complementarities in the joint retirement decisions of couples by quantifying the effect of the 2011 Norwegian pension reform. The reform abolished an earnings test on early retirement benefits for private‐sector workers, but not for public‐sector workers. I analyze population‐wide registry data on labor market participation, and I consider couples where the focal partner works in the public sector with a spouse employed either in the private sector (treatment group) or the public sector (control group). I find that spousal spillovers account for over 40 percent of the aggregate employment effect for women. They claim fewer early retirement benefits, and both men and women pay additional labor income taxes. In total, government budgets improved by approximately $46 million as a result of the spousal spillover effect between 2012 and 2015.

Trends in Labor Supply of Older Men and the Role of Social Security

The labor supply of older men increased from the 1930s to the 1950s cohort. I estimate a structural model that fits the participation and hours worked by the 1930s cohort well. The observed policy changes in normal retirement age, the earnings test, and delayed retirement credits explain 73.4% and 88.7% of the observed rises in labor force participation and hours worked by the 1950s cohort. Additional policy experiments suggest that postponing retirement age have little effect on older workers, while eliminating the earnings test and reducing retirement benefits would further increase older age participation by 3.37 and 5.10 percent, respectively.

Why Retirement and Age Discrimination Policies Need to Consider the Intersectional Experiences of Older Women

We summarize how older women face intersectional experiences that affect their retirement security. These include differential trends in aging, life expectancy, labor supply, work history, retirement savings, and poverty at old age. We also highlight research showing that older women experience significantly more age discrimination than older men. affecting the ability for older women to improve their retirement security by working longer. We demonstrate through examples that these differential trends and intersectional experiences of older women have important policy implications. We provide examples of how Social Security policies, such as increases in the full benefit retirement age and changes to the retirement earnings test, have differential effects on older women. We also discuss how age and gender employment discrimination law fails to protect older women from intersectional sex-plus-age discrimination. We conclude by urging policymakers to consider how older women experience different challenges and how policy should consider their unique experiences.

Social Security Reform with Heterogeneous Mortality

Using a heterogeneous-agent, life-cycle model of Social Security claiming, labor supply and saving, we consider the implications of lifespan inequality for Social Security reform. Quantitative experiments show that welfare is maximized when baseline benefits are independent of lifetime earnings, the payroll tax cap is kept roughly unchanged, and claiming adjustments are reduced. Eliminating the earnings test and the income taxation of Social Security benefits provides additional gains. The Social Security system that would maximize welfare in a 2050 demographics scenario, characterized by longer lifespans and an increased education-mortality gradient, is similar to the one that would maximize welfare today.

The Anticipation Effect of the Earnings Test Reform on Younger Cohorts

The Social Security earnings test reform in 2000 eliminated the earnings test for all individuals between the normal retirement age (NRA) and age sixty-nine. The earnings test has long been accused of imposing a disincentive on the labor supply among older workers. In this article, we argue that the policy change may also have affected the labor supply among people who were just below the NRA around 2000. We utilize approaches embedded with a difference-in-differences design to estimate the anticipation effect on the labor supply of the slightly younger group (aged sixty-two to sixty-four) using an even younger cohort as the control group. Our preferred estimates indicate that the cohort aged sixty-two to sixty-four had worked 5.4 percent more weeks per year and 5.1 percent more hours per week after the earnings test reform in 2000.

Examining how elderly employment is associated with institutional disincentives in Japan

This study examines how the decisions of the elderly with respect to work, retirement, and hours to work relate to the public pension and other relevant programs by constructing a single index of implicit tax that incorporates various factors related to institutional disincentives to working in Japan. Our regression model underscores that public pension and other related programs, taken together, discourage the elderly from working. Based on the regression results, we conduct simulations to show the extent to which the three policy reforms can encourage the elderly to stay in the labor force longer and work longer hours: (1) abolishing the earnings test for pension benefits; (2) raising the eligibility age for pension benefits; and (3) extending the wage subsidy for the elderly. The simulation results highlight the relative effectiveness of raising the eligibility age.

The Employment Effects of the Social Security Earnings Test

We investigate the impact of the Social Security Annual Earnings Test (AET) on the employment decisions of older Americans. The AET reduces Social Security benefits by one dollar for every two dollars earned above the exempt amount. Using a differences-in-differences design, we find that the employment rate of those predicted to become subject to the AET decreases substantially relative to those not predicted to become subject to it. The point estimates suggest that the AET reduces the employment rate of Americans aged 63-64 by at least 1.2 percentage points.

The Employment Effects of the Social Security Earnings Test

We investigate the impact of the Social Security Annual Earnings Test (AET) on the employment decisions of older Americans. The AET reduces Social Security benefits by one dollar for every two dollars earned above the exempt amount. Using a differences-in-differences design, we find that the employment rate of those predicted to become subject to the AET decreases substantially relative to those not predicted to become subject to it. The point estimates suggest that the AET reduces the employment rate of Americans aged 63-64 by at least 1.2 percentage points. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

The Employment Effects of the Social Security Earnings Test

We investigate the impact of the Social Security Annual Earnings Test (AET) on the employment decisions of older Americans. The AET reduces Social Security benefits by one dollar for every two dollars earned above the exempt amount. Using a differences-in-differences design, we find that the employment rate of those predicted to become subject to the AET decreases substantially relative to those not predicted to become subject to it. The point estimates suggest that the AET reduces the employment rate of Americans aged 63-64 by at least 1.2 percentage points.

Estimating Adjustment Frictions Using Nonlinear Budget Sets: Method and Evidence from the Earnings Test

We introduce a method for estimating the cost of adjusting earnings, as well as the earnings elasticity with respect to the net-of-tax share. Our method uses information on bunching in the earnings distribution at convex budget set kinks before and after policy-induced changes in the magnitude of the kinks: the larger is the adjustment cost, the smaller is the absolute change in bunching from before to after the policy change. In the context of the Social Security Earnings Test, our results demonstrate that the short-run impact of changes in the effective marginal tax rate can be substantially attenuated. (JEL H24, H31, H55, J22, J31)

Pension Reform and the Efficiency-Equity Trade-Off: Impacts of Removing an Early Retirement Subsidy

We provide empirical evidence that the removal of work disincentives embedded in retirement earnings tests can increase old-age labor supply considerably, but it does so at the cost of more income inequality. Causal effects are identified based on a reform of the Norwegian early retirement program, which entailed that adjacent birth cohorts were exposed to completely different work incentives from age 62. The reform removed a strict retirement earnings test such that pension wealth was redistributed from early to late retirees. Given the pre-existing employment and earnings patterns, this implied a considerable rise in old-age income inequality. In principle, this could have been offset by changes in the labor supply. We estimate that the reform triggered a 42% increase in hours worked during the ages covered by early retirement options. However, as the labor supply responses were of similar magnitudes across the earnings distribution, they did little to offset the rise in inequality. As measured by the Gini coefficient, inequality in overall old-age income rose by approximately 0.03 (17%).

Older adults’ integration in the labour market: a global view

AbstractWhat governs labour force participation in later life and why is it so different across countries? Health and labour force participation in older ages are not strongly linked, but we observe a large variation across countries in old-age labour force participation. This points to the important role of country-specific regulations governing pension receipt and old-age labour force participation. In addition to the statutory eligibility age for a pension, such country-specific regulations include: earnings tests that limit the amount of earnings when pension benefits are received; the amount of benefit deductions for early retirement; the availability of part-time pensions before normal retirement; special regulations that permit early retirement for certain population groups; and either subsidies or extra costs for employers if they keep older employees in their labour force. This paper asks two questions: Can we link a relatively low labour force participation at ages 60–64 to country-specific regulations that make early retirement attractive? and Can we link a relatively high labour force participation at ages 65–74 to country-specific regulations that make late retirement attractive? To answer these questions, we compared the experiences in a set of developed countries around the world in order to understand better the impact of country-specific rules and laws on work and retirement behaviour at older ages and, by consequence, on the financial sustainability of pension systems.