Does Eliminating the Earnings Test
Increase Old-Age Poverty of Women?
Theodore Figinski (U.S. Dept. of the
Treasury)
David Neumark (UCI)
1
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
2
Effects on Labor Supply (Viewing RET as
Tax) Vary
Anyone subject to RET
has incentive to claim
earlier when it is
eliminated
Negative income effect
Positive substitution
effect (bunched at D)
Unaffected
Income and substitution
effects
3
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
4
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 + Xiw 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
5
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
6
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
7
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
8
Observations by Age and Birth Cohort
(Affected by Elimination of RET)
Age
Men
Women with Husbands
Women
Age 70 Sample
70
71
72
73
74
75
76
Total
Less than
Age 70 in
2000
442
602
161
141
1,346
Age 70 or
Older in
2000
1,169
947
90
17
2,223
Less than
Age 70 in
2000
336
509
115
106
1,066
Age 70 or
Older in
2000
1,187
942
88
24
2,241
Less than
Age 70 in
2000
166
248
35
44
493
Age 70 or
Older in
2000
661
564
54
14
1,293
Age 75 Sample
Less than
Age 70 in
2000
Age 70 or
Older in
2000
256
188
345
274
444
619
9
Descriptive Statistics for Different
Samples
Variable
Individual Annual Social Security
Benefits, Adjusted
Family Annual Social Security
Benefits, Adjusted
Share Below Poverty Line
Share Below 200% of Poverty Line
Family Income Excluding Social
Security Benefits
Social Security Benefits as Share of
Family Income
Age
Age at claiming
< High School
High School Grad or GED
Some College
College
Higher
May
beDegree
higher(BA)
withoradmin
White Currently we have to
data.
Black
exclude
women not
Other
observed
married
toMarried
unique
Current Marital
Status:
husband
in sample
Current Marital
Status: periods,
Partnered
who
have
veryStatus:
low poverty
Current
Marital
Widowed
Current Marital Status: Divorced
rates.
Number of Observations
Men
Age 70+
Sample
21,112
Women
Age 70+
Sample
15,809
Women with Husbands Observed
Age 70+ Sample
Age 75+ Sample
14,594
17,885
…
…
33,486
37,419
…
…
…
…
…
…
0.008
0.084
47,628
0.005
0.077
40,125
…
…
0.608
0.690
71.17
63.83
0.238
0.336
0.185
0.242
0.866
0.103
0.031
0.806
0.026
0.076
0.069
3,569
71.14
63.58
0.204
0.425
0.226
0.145
0.845
0.121
0.033
0.547
0.016
0.269
0.138
3,307
71.11
63.41
0.163
0.455
0.230
0.151
0.905
0.068
0.027
0.821
0.003
0.164
0.011
1,786
75.88
63.45
0.163
0.451
0.234
0.152
0.908
0.068
0.025
0.721
0.006
0.265
0.008
1,063
10
Effect of the 2000 Elimination of RET on Age at Claiming
Benefits in Months, Men First Observed Age 70 or Older, OLS
Dependent Variable:
Less than age 70 in 2000
Born 1918-1942
Age at Claiming
in Months
(1)
-7.77***
(0.85)
Aged 69 in 2000
Aged 68 in 2000
Aged 67 in 2000
Aged 66 in 2000
Aged 65 or younger
in 2000
FRA greater than age 65
Number of Observations
1.20
(0.97)
3,569
Born 1918-1942 Born 1925-1940 Born 1925-1940
Age at Claiming Age at Claiming Age at Claiming
in Months
in Months
in Months
(2)
(3)
(4)
-7.03***
(0.87)
-4.78***
-4.03**
(1.64)
(1.61)
-6.73***
-5.92***
(1.63)
(1.61)
-8.09***
-7.37***
(1.77)
(1.74)
-7.39***
-6.64***
(1.74)
(1.71)
-9.17***
-8.44***
(1.07)
(1.08)
2.57**
1.30
2.69**
(1.17)
(1.04)
(1.21)
3,569
3,096
3,096
11
Effect of the 2000 Elimination RET on Age at Claiming Benefits
in Months, Women First Observed Age 70 or Older, OLS
Dependent Variable:
Less than Age 70 in 2000
Born 1918-1942
Age at Claiming
in Months
(1)
-9.46***
(0.83)
Aged 69 in 2000
Aged 68 in 2000
Aged 67 in 2000
Aged 66 in 2000
Aged 65 or Younger
in 2000
FRA Greater than Age 65
Number of Observations
1.84**
(0.90)
3,307
Born 1918-1942 Born 1925-1940 Born 1925-1940
Age at Claiming Age at Claiming Age at Claiming
in Months
in Months
in Months
(2)
(3)
(4)
-7.87***
(0.84)
-8.36***
-6.77***
(1.54)
(1.51)
-8.47***
-6.88***
(1.55)
(1.52)
-10.56***
-9.00***
(1.62)
(1.58)
-9.40***
-7.81***
(1.58)
(1.55)
-9.85***
-8.27***
(1.04)
(1.03)
2.23**
2.38**
2.77**
(1.09)
(0.96)
(1.12)
3,307
2,982
2,982
12
Effect of the 2000 Elimination of RET on Women’s Benefits,
Women First Observed Age 70 or Older, OLS
Dependent Variable:
Born 1918-1942
Annual Benefits
(1)
Born 1918-1942 Born 1925-1940
Annual Benefits Annual Benefits
(2)
(3)
Less than Age 70 in
2000
-1,025.83***
-731.67***
(231.00)
(237.52)
Born 1925-1940
Annual Benefits
(4)
Aged 69 in 2000
-1,017.30**
(427.22)
-722.06*
(427.94)
Aged 68 in 2000
-744.05*
(431.50)
-446.58
(432.07)
Aged 67 in 2000
-995.13**
(449.24)
-712.17
(449.38)
Aged 66 in 2000
-189.13
(439.97)
105.70
(440.43)
-1,400.73***
(287.82)
-1,104.06***
(292.02)
Aged 65 or Younger
in 2000
FRA Greater than Age
65
Results more clearly
-66.35
(250.74)
monotonically stronger for
Number of
men with years of exposure.
3,307
Observations
307.93
169.79
541.69*
(303.79)
(272.79)
(320.64)
3,307
2,982
2,982
13
Effect of the 2000 Elimination of RET on Women’s Benefits,
Women First Observed Age 70 or Older, 2SLS
Dependent Variable:
Age at Claiming Benefits
in Months (endogenous)
FRA Greater than Age 65
Instruments
F-statistic on Instrument(s)
Number of Observations
Born 1918-1942
Annual Benefits
(1)
108.48***
(24.34)
Born 1918-1942 Born 1925-1940 Born 1925-1940
Annual Benefits Annual Benefits Annual Benefits
(2)
(1)
(2)
109.73***
92.93***
95.26***
(24.18)
(29.89)
(29.59)
-266.04
(236.19)
-51.54
(254.31)
-263.39
(236.31)
Aged 69, 68, 67,
Less than Age 70 in 66, 65 or younger
2000
in 2000
129.64
26.29
3,307
3,307
Less than Age
70 in 2000
88.90
2,982
-49.93
(254.60)
Aged 69, 68, 67,
66, 65 or younger
in 2000
18.18
2,982
14
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
Dependent Variable:
Less than Age 70 in 2000
Age at Claiming in
Months
(1)
-11.52***
(1.30)
Born 1918-1942 Born 1925-1940 Born 1925-1940
Husband’s Age at
Husband’s Age at
Claiming in
Age at Claiming
Claiming in
Months
in Months
Months
(1’)
(2)
(2’)
-0.68
-10.42***
-0.22
(1.52)
(1.31)
(1.56)
Husband Less than Age 70
in 2000
1.99
(1.20)
-7.91***
(1.41)
2.12*
(1.20)
-7.76***
(1.43)
FRA Greater than Age 65
1.34
(1.37)
2.34
(1.60)
1.76
(1.40)
1.63
(1.67)
Husband’s FRA Greater
than Age 65
Number of Observations
-0.42
(1.63)
1,786
-2.50
(1.91)
1,786
0.77
(1.76)
1,644
-1.90
(2.09)
1,644
15
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
Annual Family Benefits
(1)
2,522.25***
(625.09)
Born 1925-1940
Annual Family Benefits
(2)
2,589.29***
(639.21)
Husband less than Age 70
in 2000
-4,251.50***
(577.12)
-4,135.06***
(583.04)
FRA Greater than Age 65
2,735.20***
(658.01)
3,026.28***
(682.85)
Husband’s FRA Greater
-4,694.91***
than Age
(784.66)
Columns
with65years of exposure DVs
Numberbut
of Observations
1,786
not shown,
relationship monotonic
-4,726.18***
(855.46)
1,644
Dependent Variable:
Less than Age 70 in 2000
1.
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.
16
Effect of the 2000 Elimination of RET on Family-Level Benefits,
Women with Husband Observed, Women First Observed Age 70
or Older, IV/LIML
Dependent Variable:
Age at Claiming Benefits
in Months (endogenous)
Born 1918-1942 Born 1925-1940 Born 1918-1942
Annual Family
Annual Family
Annual Family
Benefits
Benefits
Benefits
(1)
(2)
(3)
-244.21***
-258.01***
-253.21***
(69.94)
(76.30)
(66.39)
Born 1925-1940
Annual Family
Benefits
(4)
-267.49***
(73.34)
Husband’s Age at Claiming
Benefits in Months (endogenous)
475.40***
(83.79)
462.21***
(84.63)
431.74***
(75.14)
415.99***
(76.62)
FRA Greater than Age 65
1,954.55**
(788.41)
2,727.46***
(810.77)
1,905.03**
(759.40)
2,658.00***
(781.39)
Husband’s FRA Greater
than Age 65
-3,608.94***
(1,040.45)
-3,647.57***
(1,099.55)
Instruments
Minimum Eigenvalue Statistic
Number of Observations
Less than Age 70 in 2000, Husband
Less than Age 70 in 2000
21.49 (7.03)
19.44 (7.03)
1,786
1,644
-3,824.12***
-3,841.78***
(996.17)
(1,054.01)
Aged 69, 68, 67, 66, 65 or younger
in 2000, Husband aged 69, 68, 67,
66, 65 or younger in 2000
5.91 (3.64)
5.20 (3.64)
1,786
1,644
17
Effect of the 2000 Elimination of RET on Poverty/Low Income,
Women with Husband Observed, Women First Observed Age 70
or Older, OLS
Born 19181942
Born 19251940
Born 1918-1942
Born 1925-1940
Living below
200% of poverty
line
(4)
-0.0243
(0.0166)
Living in
poverty
(1)
0.0013
(0.0056)
Living in
poverty
(2)
-0.0009
(0.0053)
Living below
200% of poverty
line
(3)
-0.0290*
(0.0169)
Husband less than age 70
in 2000
-0.0037
(0.0052)
-0.0004
(0.0048)
0.0182
(0.0156)
0.0191
(0.0151)
FRA greater than age 65
0.0093
(0.0058)
0.0023
(0.0056)
0.0131
(0.0176)
-0.0111
(0.0177)
Husband’s FRA greater
than age 65
-0.0042
(0.0070)
-0.0020
(0.0071)
0.0356*
(0.0210)
0.0106
(0.0221)
Combined effect of husband
and wife less than age 70 in
2000
Number of observations
-0.0024
(0.0055)
-0.0012
(0.0052)
-0.0108
(0.0166)
-0.0052
(0.0163)
1,770
1,635
1,770
1,635
Dependent variable:
Less than age 70 in 2000
Those closer to 200% of poverty line more
likely to be group that increases labor supply
in response to elimination of RET?
18
Effect of the 2000 Elimination RET on Poverty/Low Income,
Women with Husband Observed, Women First Observed Age 70
or Older, 2SLS
Born 19181942
Born 19251940
Living in
poverty
(2)
0.0001
(0.0005)
Born 19181942
Living below
200% of
poverty line
(3)
0.0027*
(0.0016)
Born 19251940
Living below
200% of poverty
line
(4)
0.0024
(0.0016)
Age at claiming benefits
in months (endogenous)
Living in
poverty
(1)
-0.0002
(0.0005)
Husband’s age at claiming
benefits in months (endogenous)
0.0004
(0.0006)
0.0001
(0.0006)
-0.0017
(0.0019)
-0.0018
(0.0018)
FRA greater than age 65
0.0085
(0.0056)
0.0020
(0.0054)
0.0131
(0.0171)
-0.0125
(0.0172)
Husband’s FRA greater
than age 65
-0.0032
(0.0074)
-0.0019
(0.0073)
0.0326
(0.0226)
0.0057
(0.0232)
Dependent variable:
Combined effect of husband
and wife less than age 70 in 2000
Instruments:
Minimum eigenvalue statistic
First-stage estimate
Number of observations
0.0003
0.0001
(0.0006)
(0.0006)
Less than age 70 in 2000,
husband less than age 70 in
2000
20.17 (7.03)
19.32 (7.03)
N.R.
N.R.
1,770
1,635
0.001
0.0006
(0.0019)
(0.002)
Less than age 70 in 2000,
husband less than age 70 in
2000
20.17 (7.03)
19.32 (7.03)
N.R.
N.R.
1,770
1,635
19
Effect of the 2000 Elimination of RET on Poverty/Low Income,
Women with Husband Observed, Women First Observed Age 75
or Older, OLS
Born 19181942
Born 19251940
Born 1918-1942
Born 1925-1940
Living below
200% of poverty
line
(4)
0.0382**
(0.0183)
Living in
poverty
(1)
0.0023
(0.0050)
Living in
poverty
(2)
0.0022
(0.0053)
Living below
200% of poverty
line
(3)
0.0288
(0.0180)
Husband less than age 70
in 2000
0.0030
(0.0052)
0.0032
(0.0054)
0.0058
(0.0186)
-0.0021
(0.0187)
Husband’s FRA greater
than age 65
-0.0112
(0.0144)
-0.0116
(0.0147)
0.1242**
(0.0514)
0.1327***
(0.0511)
Combined effect of husband
and wife less than age 70 in
2000
Number of observations
0.0053
(0.0051)
0.0055
(0.0054)
0.0346*
(0.0183)
0.0361*
(0.0186)
1,050
1,003
1,050
1,003
Dependent variable:
Less than age 70 in 2000
20
Effect of the 2000 Elimination of RET on Poverty/Low Income,
Women with Husband Observed, Women First Observed Age 75
or Older, 2SLS
Born 19181942
Born 19251940
Age at claiming benefits
in months (endogenous)
Living in
poverty
(1)
-0.0002
(0.0005)
Husband’s age at claiming
benefits in months (endogenous)
Husband’s FRA greater
than age 65
Dependent variable:
Combined effect of husband
and wife less than age 70 in 2000
Instruments:
Minimum eigenvalue statistic
First-stage estimate
Number of observations
Living in
poverty
(2)
-0.0002
(0.0006)
Born 19181942
Living below
200% of
poverty line
(3)
-0.0027
(0.0018)
Born 19251940
Living below
200% of poverty
line
(4)
-0.0043**
(0.0022)
-0.0004
(0.0006)
-0.0004
(0.0006)
-0.0011
(0.0020)
-0.0004
(0.0022)
-0.0094
(0.0143)
-0.0098
(0.0148)
0.1378***
(0.0524)
0.1511***
(0.0535)
-0.0006
-0.0007
(0.0006)
(0.0007)
Less than age 70 in 2000,
husband less than age 70 in
2000
15.93 (7.03)
14.35 (7.03)
N.R.
N.R.
1,050
1,003
-0.0038*
-0.0048*
(0.0020)
(0.0024)
Less than age 70 in 2000,
husband less than age 70 in
2000
15.93 (7.03)
14.35 (7.03)
N.R.
N.R.
1,050
1,003
21
Effect of the 2000 Elimination of RET on Poverty/Low Income,
Women First Observed Age 70 or Older, OLS/2SLS
OLS
Dependent variable:
Less than age 70 in 2000
FRA greater than age 65
IV
Age at claiming benefits
in months (endogenous)
FRA greater than age 65
Instruments:
Minimum eigenvalue statistic
First-stage estimate
Number of observations
Born 19181942
Born 19251940
Living in
poverty
(2)
-0.0119*
(0.0071)
Born 19181942
Living below
200% of
poverty line
(3)
-0.0533***
(0.0141)
Born 19251940
Living below
200% of poverty
line
(4)
-0.0553***
(0.0144)
Living in
poverty
(1)
-0.0144**
(0.0072)
0.0120
(0.0078)
0.0018
(0.0081)
0.0632***
(0.0153)
0.0369**
(0.0165)
0.0016**
(0.0008)
0.0015*
(0.0009)
0.0058***
(0.0016)
0.0070***
(0.0020)
0.0092
-0.0018
(0.0075)
(0.0077)
Less than age 70 in 2000,
husband less than age 70 in
2000
122.8
88.48 (16.38)
(16.38)
N.R.
N.R.
3,272
2,958
0.0527***
0.0200
(0.0154)
(0.0170)
Less than age 70 in 2000,
husband less than age 70 in
2000
122.8 (16.38)
88.48 (16.38)
N.R.
3,272
N.R.
2,958
22
Effect of the 2000 Elimination of RET on Poverty/Low Income,
Women First Observed Age 75 or Older, OLS/2SLS
OLS
Dependent variable:
Less than age 70 in 2000
IV
Age at claiming benefits
in months (endogenous)
Instruments:
Minimum eigenvalue statistic
First-stage estimate
Number of observations
Born 19181942
Born 19251940
Living in
poverty
(2)
0.0134**
(0.0054)
Born 19181942
Living below
200% of
poverty line
(3)
0.0336**
(0.0150)
Born 19251940
Living below
200% of poverty
line
(4)
0.0447***
(0.0155)
Living in
poverty
(1)
0.0122**
(0.0051)
-0.0013**
(0.0006)
-0.0018**
(0.0007)
-0.0037**
(0.0017)
-0.0059***
(0.0022)
Less than age 70 in 2000,
husband less than age 70 in
2000
122.8
88.48 (16.38)
(16.38)
N.R.
N.R.
3,272
2,958
Less than age 70 in 2000,
husband less than age 70 in
2000
122.8 (16.38)
88.48 (16.38)
N.R.
3,272
N.R.
2,958
23
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)
24
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 lowerskilled and have lower past earnings
25