1 Does Eliminating the Earnings Test Increase Old-Age Poverty of Women? Theodore Figinski (U.S....

1

Does Eliminating the Earnings Test

Increase Old-Age Poverty of Women?

Theodore Figinski (U.S. Dept. of the Treasury)

David Neumark (UCI)

2

Motivation and Question

· Elimination of the RET for those between FRA and age 69 in 2000 was intended to boost employment in this age range

· Makes early claiming more likely, reducing Social Security benefits in the longer-run

· Can also influence the time-path of earnings, saving, and income from assets (because RET viewed as a tax)

· Uncertain effects on family income (including benefits) at older ages – perhaps especially older women or widows

· Question: Did the elimination of the RET in 2000 increase old-age poverty for affected women?

– Also speaks to potential effects of additional efforts to encourage work by eliminating or reducing the RET between age 62 and the FRA

3

Effects on Labor Supply (Viewing RET as Tax) Vary

Negative income effect

Unaffected

Positive substitution effect (bunched at D)

Income and substitution effects

Anyone subject to RET has incentive to claim earlier when it is eliminated

4

Effects on labor supply and claiming may affect resources in long term

· Elimination of RET surely incentivizes some people to claim earlier– Gruger and Orszag (2003) find this for men, for earlier reforms

– Figinski’s past research on 2000 reforms indicates claiming response but not an earnings response for women

· Earlier claiming, coupled with possible labor supply increases, implies increased resources available before husband retires (between the benefits, and possibly higher earnings)

· But unless there is saving out of the husband’s higher earnings, or effect via assets being run down more slowly, women may be left with fewer resources at older ages, when benefits are primary source of income, and are lower

5

Approach in Brief

· HRS data on women (mainly) and their husbands

· Reduced-form models identifying the effect of the elimination of the RET from inter-cohort changes– E.g., age at claiming for women only, younger cohorts face

eliminated RET, and we subsequently observe Social Security benefits and other sources of income

– AgeClaimiw

= α + βEETiw + Xi

w γ + εi

– Also estimate for SS benefits, Pr(in poverty, 2 x poverty), and expand EET to “years exposed” to elimination of RET

– Estimate models where outcomes depends on husbands’ and wives’ exposure

· Models of benefits, Pr(in poverty, 2 x poverty) on age at claiming, instrumenting with EET or expanded dummies

– LATE interpretation: effect of claiming earlier for those induced to do so by elimination of RET

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Indexing/Counterfactual Issue (I)

· PIA is based on AWI at age 60, and then subsequently indexed by CPI-W

· Because policy variation is based only on birth cohort, constructing right counterfactual for SS benefits requires careful indexation

· E.g., benefits for the 1930 cohort may not correctly estimate the counterfactual for the 1931 cohort had the RET not been eliminated

· Because PIA grows faster, if we just inflate benefits of older cohorts by CPI-W, counterfactual benefits are too low and we won’t (and don’t) detect benefits penalty from claiming early

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Indexing/Counterfactual Issue (II)

· So for SS benefits, we first multiply by the ratio of the AWI in 1995 to the AWI when the person was aged 60

– Puts all workers’ benefits on equivalent footing, in terms of the AWI, to worker who was age 65 in 2000 (first cohort exposed to the elimination of the RET beginning at the FRA)

· Then because benefits are observed at different years depending on age and when a person is observed in the HRS, we multiply this adjusted figure by the ratio of the CPI-W in 2013 to the CPI-W in 1995, to express all benefits in 2013 dollars

· Other sources of income when we look at poverty are indexed by CPI-U (standard), so “income” is a hybrid of indexation methods

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Data

· Use RAND HRS files

· With reported Social Security claiming age 62-71

· One observation per individual, for main analysis, first observation at 70 or above, and older sample at 75 or above

· To study how women are affected by their responses and their spouse’s responses to the elimination of the RET, also construct sample of women who can be matched to unique husband (married, to single spouse in HRS window)

· With administrative Social Security records, we could do better in principle, pinning down type of benefits and hence whose behavior they depend on

– So far, substantial discrepancies in admin data, and some nonsensical results for age at claiming

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Observations by Age and Birth Cohort (Affected by Elimination of RET)

Age Men Women Women with Husbands

Age 70 Sample Age 75 Sample

Less than Age 70 in

2000

Age 70 or Older in

2000

Less than Age 70 in

2000

Age 70 or Older in

2000

Less than Age 70 in

2000

Age 70 or Older in

2000

Less than Age 70 in

2000

Age 70 or Older in

200070 442 1,169 336 1,187 166 661

71 602 947 509 942 248 564 72 161 90 115 88 35 54 73 141 17 106 24 44 14 74 75 256 34576 188 274

Total 1,346 2,223 1,066 2,241 493 1,293 444 619

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Descriptive Statistics for Different Samples

Variable Men Women Women with Husbands Observed

Age 70+ Sample

Age 70+ Sample

Age 70+ Sample Age 75+ Sample

Individual Annual Social Security Benefits, Adjusted

21,112 15,809 14,594 17,885

Family Annual Social Security Benefits, Adjusted

… … 33,486 37,419

Share Below Poverty Line … … 0.008 0.005Share Below 200% of Poverty Line … … 0.084 0.077Family Income Excluding Social Security Benefits

… … 47,628 40,125

Social Security Benefits as Share of Family Income

… … 0.608 0.690

Age 71.17 71.14 71.11 75.88Age at claiming 63.83 63.58 63.41 63.45< High School 0.238 0.204 0.163 0.163High School Grad or GED 0.336 0.425 0.455 0.451Some College 0.185 0.226 0.230 0.234College Degree (BA) or Higher 0.242 0.145 0.151 0.152White 0.866 0.845 0.905 0.908Black 0.103 0.121 0.068 0.068Other 0.031 0.033 0.027 0.025Current Marital Status: Married 0.806 0.547 0.821 0.721Current Marital Status: Partnered 0.026 0.016 0.003 0.006Current Marital Status: Widowed 0.076 0.269 0.164 0.265Current Marital Status: Divorced 0.069 0.138 0.011 0.008Number of Observations 3,569 3,307 1,786 1,063

May be higher with admin data. Currently we have to exclude women not observed married to unique husband in sample periods, who have very low poverty rates.

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Effect of the 2000 Elimination of RET on Age at Claiming Benefits in Months, Men First Observed Age 70 or Older, OLS

Born 1918-1942 Born 1918-1942Born 1925-

1940Born 1925-1940

Dependent Variable:Age at Claiming

in MonthsAge at Claiming



in Months (1) (2) (3) (4)

Less than age 70 in 2000 -7.77*** -7.03*** (0.85) (0.87)

Aged 69 in 2000 -4.78*** -4.03** (1.64) (1.61)Aged 68 in 2000 -6.73*** -5.92*** (1.63) (1.61)Aged 67 in 2000 -8.09*** -7.37*** (1.77) (1.74)Aged 66 in 2000 -7.39*** -6.64*** (1.74) (1.71)Aged 65 or younger -9.17*** -8.44***in 2000 (1.07) (1.08)FRA greater than age 65 1.20 2.57** 1.30 2.69** (0.97) (1.17) (1.04) (1.21)Number of Observations 3,569 3,569 3,096 3,096

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Effect of the 2000 Elimination RET on Age at Claiming Benefits in Months, Women First Observed Age 70 or Older, OLS

Born 1918-1942 Born 1918-1942Born 1925-

1940Born 1925-1940

Dependent Variable:Age at Claiming




in Months (1) (2) (3) (4)

Less than Age 70 in 2000 -9.46*** -7.87*** (0.83) (0.84)

Aged 69 in 2000 -8.36*** -6.77*** (1.54) (1.51)Aged 68 in 2000 -8.47*** -6.88*** (1.55) (1.52)Aged 67 in 2000 -10.56*** -9.00*** (1.62) (1.58)Aged 66 in 2000 -9.40*** -7.81*** (1.58) (1.55)Aged 65 or Younger -9.85*** -8.27***in 2000 (1.04) (1.03)FRA Greater than Age 65 1.84** 2.23** 2.38** 2.77** (0.90) (1.09) (0.96) (1.12)Number of Observations 3,307 3,307 2,982 2,982

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Effect of the 2000 Elimination of RET on Women’s Benefits, Women First Observed Age 70 or Older, OLS

Born 1918-1942Born 1918-

1942Born 1925-1940 Born 1925-1940

Dependent Variable: Annual Benefits Annual Benefits Annual Benefits Annual Benefits (1) (2) (3) (4)

Less than Age 70 in 2000

-1,025.83*** -731.67***

(231.00) (237.52) Aged 69 in 2000 -1,017.30** -722.06* (427.22) (427.94) Aged 68 in 2000 -744.05* -446.58 (431.50) (432.07) Aged 67 in 2000 -995.13** -712.17 (449.24) (449.38) Aged 66 in 2000 -189.13 105.70 (439.97) (440.43) Aged 65 or Younger -1,400.73*** -1,104.06***in 2000 (287.82) (292.02) FRA Greater than Age 65

-66.35 307.93 169.79 541.69*

(250.74) (303.79) (272.79) (320.64)Number of Observations

3,307 3,307 2,982 2,982

Results more clearly monotonically stronger for men with years of exposure.

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Effect of the 2000 Elimination of RET on Women’s Benefits, Women First Observed Age 70 or Older, 2SLS

Born 1918-1942 Born 1918-1942 Born 1925-1940 Born 1925-1940Dependent Variable: Annual Benefits Annual Benefits Annual Benefits Annual Benefits

(1) (2) (1) (2)Age at Claiming Benefits 108.48*** 109.73*** 92.93*** 95.26***in Months (endogenous) (24.34) (24.18) (29.89) (29.59) FRA Greater than Age 65 -266.04 -263.39 -51.54 -49.93 (236.19) (236.31) (254.31) (254.60)

InstrumentsLess than Age 70 in

2000

Aged 69, 68, 67, 66, 65 or

younger in 2000Less than Age

70 in 2000

Aged 69, 68, 67, 66, 65 or younger

in 2000F-statistic on Instrument(s) 129.64 26.29 88.90 18.18Number of Observations 3,307 3,307 2,982 2,982

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Effect of the 2000 Elimination of RET on Age at Claiming Benefits in Months, Women with Husband Observed, Women First Observed Age

70 or Older, OLS

Born 1918-1942 Born 1918-1942 Born 1925-1940 Born 1925-1940

Dependent Variable: Age at Claiming in Months

Husband’s Age at Claiming in

MonthsAge at Claiming

in Months

Husband’s Age at Claiming in

Months (1) (1’) (2) (2’)

Less than Age 70 in 2000 -11.52*** -0.68 -10.42*** -0.22(1.30) (1.52) (1.31) (1.56)

Husband Less than Age 70 1.99 -7.91*** 2.12* -7.76***in 2000 (1.20) (1.41) (1.20) (1.43) FRA Greater than Age 65 1.34 2.34 1.76 1.63 (1.37) (1.60) (1.40) (1.67) Husband’s FRA Greater -0.42 -2.50 0.77 -1.90than Age 65 (1.63) (1.91) (1.76) (2.09)Number of Observations 1,786 1,786 1,644 1,644

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Effect of the 2000 Elimination of RET Combined Family Benefits, Women with Husband Observed, Women First Observed Age 70 or

Older, OLS

Born 1918-1942 Born 1925-1940Dependent Variable: Annual Family Benefits Annual Family Benefits

(1) (2)Less than Age 70 in 2000 2,522.25*** 2,589.29***

(625.09) (639.21) Husband less than Age 70 -4,251.50*** -4,135.06***in 2000 (577.12) (583.04) FRA Greater than Age 65 2,735.20*** 3,026.28*** (658.01) (682.85) Husband’s FRA Greater -4,694.91*** -4,726.18***than Age 65 (784.66) (855.46)Number of Observations 1,786 1,6441. Columns with years of exposure DVs

not shown, but relationship monotonic as expected, for both husband’s and wife’s exposure.

2. Positive for women’s exposure to elimination of RET is surprising, and not clear why misclassification owing to non-admin data would cause this.

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Effect of the 2000 Elimination of RET on Family-Level Benefits, Women with Husband Observed, Women First Observed Age 70

or Older, IV/LIML

Born 1918-1942 Born 1925-1940 Born 1918-1942 Born 1925-1940

Dependent Variable:Annual Family

BenefitsAnnual Family



Benefits (1) (2) (3) (4)

Age at Claiming Benefits -244.21*** -258.01*** -253.21*** -267.49***in Months (endogenous) (69.94) (76.30) (66.39) (73.34) Husband’s Age at Claiming 475.40*** 462.21*** 431.74*** 415.99***Benefits in Months (endogenous) (83.79) (84.63) (75.14) (76.62) FRA Greater than Age 65 1,954.55** 2,727.46*** 1,905.03** 2,658.00*** (788.41) (810.77) (759.40) (781.39) Husband’s FRA Greater -3,608.94*** -3,647.57*** -3,824.12*** -3,841.78***than Age 65 (1,040.45) (1,099.55) (996.17) (1,054.01)

InstrumentsLess than Age 70 in 2000, Husband

Less than Age 70 in 2000

Aged 69, 68, 67, 66, 65 or younger in 2000, Husband aged 69, 68, 67,

66, 65 or younger in 2000Minimum Eigenvalue Statistic 21.49 (7.03) 19.44 (7.03) 5.91 (3.64) 5.20 (3.64)

Number of Observations 1,786 1,644 1,786 1,644

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Effect of the 2000 Elimination of RET on Poverty/Low Income, Women with Husband Observed, Women First Observed Age 70

or Older, OLS

Born 1918-

1942Born 1925-

1940Born 1918-1942 Born 1925-1940

Dependent variable:Living in poverty

Living in poverty

Living below 200% of poverty

line


line (1) (2) (3) (4)

Less than age 70 in 2000 0.0013 -0.0009 -0.0290* -0.0243(0.0056) (0.0053) (0.0169) (0.0166)

Husband less than age 70 -0.0037 -0.0004 0.0182 0.0191in 2000 (0.0052) (0.0048) (0.0156) (0.0151) FRA greater than age 65 0.0093 0.0023 0.0131 -0.0111 (0.0058) (0.0056) (0.0176) (0.0177) Husband’s FRA greater -0.0042 -0.0020 0.0356* 0.0106than age 65 (0.0070) (0.0071) (0.0210) (0.0221) Combined effect of husband -0.0024 -0.0012 -0.0108 -0.0052and wife less than age 70 in 2000

(0.0055) (0.0052) (0.0166) (0.0163)

Number of observations 1,770 1,635 1,770 1,635

Those closer to 200% of poverty line more likely to be group that increases labor supply in response to elimination of RET?

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Effect of the 2000 Elimination RET on Poverty/Low Income, Women with Husband Observed, Women First Observed Age 70

or Older, 2SLS

Born 1918-

1942Born 1925-

1940Born 1918-

1942Born 1925-

1940


Living in poverty

Living below 200% of

poverty line


line (1) (2) (3) (4)

Age at claiming benefits -0.0002 0.0001 0.0027* 0.0024in months (endogenous) (0.0005) (0.0005) (0.0016) (0.0016) Husband’s age at claiming 0.0004 0.0001 -0.0017 -0.0018benefits in months (endogenous) (0.0006) (0.0006) (0.0019) (0.0018) FRA greater than age 65 0.0085 0.0020 0.0131 -0.0125 (0.0056) (0.0054) (0.0171) (0.0172) Husband’s FRA greater -0.0032 -0.0019 0.0326 0.0057than age 65 (0.0074) (0.0073) (0.0226) (0.0232) Combined effect of husband 0.0003 0.0001 0.001 0.0006

and wife less than age 70 in 2000 (0.0006) (0.0006) (0.0019) (0.002)

Instruments:

Less than age 70 in 2000, husband less than age 70 in

2000


2000

Minimum eigenvalue statistic 20.17 (7.03)

19.32 (7.03) 20.17 (7.03) 19.32 (7.03)

First-stage estimate N.R. N.R. N.R. N.R.


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or Older, OLS

Born 1918-

1942Born 1925-

1940Born 1918-1942 Born 1925-1940


Living in poverty


line


line (1) (2) (3) (4)

Less than age 70 in 2000 0.0023 0.0022 0.0288 0.0382**(0.0050) (0.0053) (0.0180) (0.0183)

Husband less than age 70 0.0030 0.0032 0.0058 -0.0021in 2000 (0.0052) (0.0054) (0.0186) (0.0187) Husband’s FRA greater -0.0112 -0.0116 0.1242** 0.1327***than age 65 (0.0144) (0.0147) (0.0514) (0.0511) Combined effect of husband 0.0053 0.0055 0.0346* 0.0361*and wife less than age 70 in 2000

(0.0051) (0.0054) (0.0183) (0.0186)


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or Older, 2SLS

Born 1918-

1942Born 1925-

1940Born 1918-

1942Born 1925-

1940


Living in poverty


poverty line


line (1) (2) (3) (4)

Age at claiming benefits -0.0002 -0.0002 -0.0027 -0.0043**in months (endogenous) (0.0005) (0.0006) (0.0018) (0.0022) Husband’s age at claiming -0.0004 -0.0004 -0.0011 -0.0004benefits in months (endogenous) (0.0006) (0.0006) (0.0020) (0.0022) Husband’s FRA greater -0.0094 -0.0098 0.1378*** 0.1511***than age 65 (0.0143) (0.0148) (0.0524) (0.0535) Combined effect of husband -0.0006 -0.0007 -0.0038* -0.0048*and wife less than age 70 in 2000 (0.0006) (0.0007) (0.0020) (0.0024)

Instruments:


2000


2000

Minimum eigenvalue statistic 15.93 (7.03)

14.35 (7.03) 15.93 (7.03) 14.35 (7.03)

First-stage estimate N.R. N.R. N.R. N.R.


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Effect of the 2000 Elimination of RET on Poverty/Low Income, Women First Observed Age 70 or Older, OLS/2SLS

OLSBorn 1918-

1942Born 1925-

1940Born 1918-

1942Born 1925-

1940


Living in poverty


poverty line


line (1) (2) (3) (4)

Less than age 70 in 2000 -0.0144** -0.0119* -0.0533*** -0.0553***(0.0072) (0.0071) (0.0141) (0.0144)

FRA greater than age 65 0.0120 0.0018 0.0632*** 0.0369** (0.0078) (0.0081) (0.0153) (0.0165)

IV Age at claiming benefits 0.0016** 0.0015* 0.0058*** 0.0070***in months (endogenous) (0.0008) (0.0009) (0.0016) (0.0020) FRA greater than age 65 0.0092 -0.0018 0.0527*** 0.0200 (0.0075) (0.0077) (0.0154) (0.0170)

Instruments:


2000


2000

Minimum eigenvalue statistic 122.8

(16.38)88.48 (16.38) 122.8 (16.38) 88.48 (16.38)

First-stage estimate N.R. N.R. N.R. N.R.Number of observations 3,272 2,958 3,272 2,958

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Effect of the 2000 Elimination of RET on Poverty/Low Income, Women First Observed Age 75 or Older, OLS/2SLS

OLSBorn 1918-

1942Born 1925-

1940Born 1918-

1942Born 1925-

1940


Living in poverty


poverty line


line (1) (2) (3) (4)

Less than age 70 in 2000 0.0122** 0.0134** 0.0336** 0.0447***(0.0051) (0.0054) (0.0150) (0.0155)

IV Age at claiming benefits -0.0013** -0.0018** -0.0037** -0.0059***in months (endogenous) (0.0006) (0.0007) (0.0017) (0.0022)

Instruments:


2000


2000

Minimum eigenvalue statistic 122.8

(16.38)88.48 (16.38) 122.8 (16.38) 88.48 (16.38)

First-stage estimate N.R. N.R. N.R. N.R.Number of observations 3,272 2,958 3,272 2,958

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Preliminary Findings

· Confirm past findings that the elimination of the RET led to earlier claiming of benefits, for both men (not shown) and women

· Social Security benefits at the individual and family level are lower as a result of the elimination of the RET – most strongly for husbands

· Evidence to some extent points to eliminating the RET leading to lower likelihood of poverty or low income of older women near age 70, but higher probability near age 75

– Past period when own or husband’s earnings likely to offset lower benefits?

– Higher incidence of widowhood (about 40-70%, or 12 percentage points, higher)

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To Do

· Probit/IV probit estimates: preliminary reading is that stronger results are robust

· Try to solve issues to analyze administrative SS data linked to HRS

· Examine labor income and possible saving and other sources of income that might be affected by the elimination of the RET

· Identification of individuals and families more likely to be affected in one direction or the other by the elimination of the RET

– Can provide more useful information on the expected effects of elimination or reducing the RET for those between 62 and the FRA, who are likely to be lower-skilled and have lower past earnings

1 Does Eliminating the Earnings Test Increase Old-Age Poverty of Women? Theodore Figinski (U.S....

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