Full Citation
Title: The Effect of Government Programs on the Labor Supply of the Elderly
Citation Type: Dissertation/Thesis
Publication Year: 1996
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Abstract: Two chapters of this dissertation focus on elderly labor supply and how it has been influenced by means or earnings tested government transfers. The third chapter studies how divorce behavior responded to changes in state divorce laws. All three chapters use the strategy of studying the response to changes in rules as a way of identifying how individuals make decisions. Chapter 1 examines the Social Security earnings test, which reduces benefits when a beneficiary works. The marginal tax rates of 33-50% for earnings above an exempt amount are among the economy's highest. I examine three changes in the earnings test rules to identify its impact. First, I show that many individuals bunch their earnings just below the exempt amount, evidence of reduced labor supply. Then, I model the earnings test formally and estimate sizable elasticities. The elasticities imply substantial deadweight loss and suggest that eliminating the earnings test would raise labor supply by 14%, with minimal fiscal cost. Chapter 2 analyzes the impact of the first transfer program for the elderly on retirement. Economists have extensively studied rising retirement rates without reaching a consensus, focusing mostly on the role of Social Security since the 1960s. Old Age Assistance was introduced in 1935 and dwarfed Social Security at least until 1950. Retirement rates began to increase during that same period. Moreover, states determined benefit levels, inducing cross-sectional variation that is lacking for Social Security to identify labor supply estimates. Using 1940 and 1950 Census data, I find that Old Age Assistance contributed significantly to the early increase in retirement. Chapter 3 revisits evidence on the impact of unilateral divorce laws on divorce. Most states switched from requiring mutual consent to allowing unilateral or no-fault divorce between 1970 and 1985, while the divorce rate more than doubled after 1965. According to the Coase theorem, the legal shift should not affect divorce rates. I employ a panel of state divorce rates, which controls in a very flexible way for unobservables that influence divorce and vary across states and over time. This approach reveals a strong effect of divorce laws--switching to unilateral divorce explained 16% of the increased divorce rate.
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Authors: Friedberg, Leora
Institution: Massachusetts Institute of Technology
Department: Department of Economics
Advisor: James Poterba
Degree: Doctor of Philosophy
Publisher Location: Cambridge, MA
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Data Collections: IPUMS USA
Topics: Aging and Retirement, Family and Marriage, Labor Force and Occupational Structure
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