NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Earnings Adjustment Frictions: Evidence from the Social Security Earnings Test

Alexander M. Gelber, Damon Jones, Daniel W. Sacks

NBER Working Paper No. 19491
Issued in October 2013
NBER Program(s):   AG   EFG   LS   ME   PE

We study frictions in adjusting earnings to changes in the Social Security Annual Earnings Test (AET) using a panel of Social Security Administration microdata on one percent of the U.S. population from 1961 to 2006. Individuals continue to "bunch" at the convex kink the AET creates even when they are no longer subject to the AET, consistent with the existence of earnings adjustment frictions in the U.S. We develop a novel framework for estimating an earnings elasticity and an adjustment cost using information on the amount of bunching at kinks before and after policy changes in earnings incentives around the kinks. We apply this method in settings in which individuals face changes in the AET benefit reduction rate, and we estimate in a baseline case that the earnings elasticity with respect to the implicit net-of-tax share is 0.23, and the fixed cost of adjustment is $152.08.

download in pdf format
   (1929 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (1929 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19491

Users who downloaded this paper also downloaded these:
Muralidharan and Sundararaman w19441 The Aggregate Effect of School Choice: Evidence from a Two-stage Experiment in India
Hagedorn, Karahan, Manovskii, and Mitman w19499 Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects
Gustman and Steinmeier w19071 Effects of Social Security Policies on Benefit Claiming, Retirement and Saving
Heckman and Kautz w19656 Fostering and Measuring Skills: Interventions That Improve Character and Cognition
Paravisini, Rappoport, and Ravina w16063 Risk Aversion and Wealth: Evidence from Person-to-Person Lending Portfolios
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us