The Effect of Social Security Benefits on Retirement: Evidence from the Notch Cohorts

This project uses Social Security Administration (SSA) data on individuals’ day of birth, and earnings to examine how the size of Old Age and Survivors Insurance (OASI) benefits affects individuals’ earnings.  

Study Activities

This project uses Social Security Administration (SSA) data on individuals’ day of birth, and earnings to examine how the size of Old Age and Survivors Insurance (OASI) benefits affects individuals’ earnings.  In order to convincingly estimate the effect of OASI benefits on earnings, we exploit the fact that OASI benefits may be very different for similar individuals born just one day apart. In particular, the 1977 amendments to Social Security created the so-called “notch”: individuals born January 2, 1917 and after had sharply lower average Social Security benefits than those born January 1, 1917 or before. Using a regression discontinuity design, we compare earnings and mortality outcomes for individuals born just before and after such benefit changes.

Study Findings

Mean earnings rise sharply around precisely at the discontinuity once individuals have reached Full Retirement Age. The mean age of retirement also rises precisely at the discontinuity, implying that the cut in benefits associated with the notch caused individuals to retire later. In other words, the cut in Social Security benefits substantially increased earnings and employment.

 

 

 

Project Director: 
Alexander Gelber