Author(s)
Zhixiu Yu

This paper investigates the role of Social Security reforms in explaining the increase in labor supply of older men across cohorts and evaluates the labor response by health status. I develop and estimate a rich dynamic life-cycle model of labor supply, savings, and Social Security application that captures the key structure of Social Security retirement benefits, disability insurance, and pension systems, while accounting for uncertainties in health, survival, wages, and medical expenditures. The model matches well the observed life-cycle profiles of employment, hours per worker, and savings for men in the 1930s cohort from the Panel Study of Income Dynamics. I find that Social Security reforms account for over 77% of the observed rises in employment and hours worked by the 1950s cohort, with the retirement earnings test reforms being the most important. The labor response is smaller for unhealthy individuals due to the work disincentives provided by disability benefits.

Publication Type
Working Paper
File Description
Third version, November 2023
JEL Codes
D15: Intertemporal Household Choice; Life Cycle Models and Saving
H55: Social Security and Public Pensions
I12: Health Production
J14: Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination
J22: Time Allocation and Labor Supply
Keywords
Social Security reform
retirement
labor force participation
health
older workers