1. 1 Does Eliminating the Earnings Test Increase Old-Age Poverty of Women? Theodore Figinski (U.S. Dept. of the Treasury) David Neumark (UCI)

2. 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. 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. 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. 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 – –AgeClaim i w = α + βEET i w + X i w γ + ε i – –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

6. 6 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

7. 7 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

8. 8Data   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

9. 9 Observations by Age and Birth Cohort (Affected by Elimination of RET) AgeMenWomen Women with Husbands Age 70 SampleAge 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 2000 704421,1693361,187166661 71602947509942248564 7216190115883554 7314117106244414 74 75 256345 76 188274 Total1,3462,2231,0662,2414931,293444619

10. 10 Descriptive Statistics for Different Samples VariableMenWomenWomen with Husbands Observed Age 70+ Sample Age 75+ Sample Individual Annual Social Security Benefits, Adjusted 21,11215,80914,59417,885 Family Annual Social Security Benefits, Adjusted ……33,48637,419 Share Below Poverty Line……0.0080.005 Share Below 200% of Poverty Line……0.0840.077 Family Income Excluding Social Security Benefits ……47,62840,125 Social Security Benefits as Share of Family Income ……0.6080.690 Age71.1771.1471.1175.88 Age at claiming63.8363.5863.4163.45 < High School0.2380.2040.163 High School Grad or GED0.3360.4250.4550.451 Some College0.1850.2260.2300.234 College Degree (BA) or Higher0.2420.1450.1510.152 White0.8660.8450.9050.908 Black0.1030.1210.068 Other0.0310.0330.0270.025 Current Marital Status: Married0.8060.5470.8210.721 Current Marital Status: Partnered0.0260.0160.0030.006 Current Marital Status: Widowed0.0760.2690.1640.265 Current Marital Status: Divorced0.0690.1380.0110.008 Number of Observations3,5693,3071,7861,063 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.

11. 11 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 1925-1940 Dependent Variable: Age 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 651.202.57**1.302.69** (0.97)(1.17)(1.04)(1.21) Number of Observations3,569 3,096

12. 12 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 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 651.84**2.23**2.38**2.77** (0.90)(1.09)(0.96)(1.12) Number of Observations3,307 2,982

13. 13 Effect of the 2000 Elimination of RET on Women’s Benefits, Women First Observed Age 70 or Older, OLS Born 1918-1942 Born 1925-1940 Dependent Variable: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 -66.35307.93169.79541.69* (250.74)(303.79)(272.79)(320.64) Number of Observations 3,307 2,982 Results more clearly monotonically stronger for men with years of exposure.

14. 14 Effect of the 2000 Elimination of RET on Women’s Benefits, Women First Observed Age 70 or Older, 2SLS Born 1918-1942 Born 1925-1940 Dependent Variable:Annual Benefits (1)(2)(1)(2) Age at Claiming Benefits108.48***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) Instruments Less than Age 70 in 2000 Aged 69, 68, 67, 66, 65 or younger in 2000 Less than Age 70 in 2000 Aged 69, 68, 67, 66, 65 or younger in 2000 F-statistic on Instrument(s)129.6426.2988.9018.18 Number of Observations3,307 2,982

15. 15 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 1925-1940 Dependent Variable: Age at Claiming in Months Husband’s Age at Claiming in Months Age 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 701.99-7.91***2.12*-7.76*** in 2000(1.20)(1.41)(1.20)(1.43) FRA Greater than Age 651.342.341.761.63 (1.37)(1.60)(1.40)(1.67) Husband’s FRA Greater-0.42-2.500.77-1.90 than Age 65(1.63)(1.91)(1.76)(2.09) Number of Observations1,786 1,644

16. 16 Effect of the 2000 Elimination of RET Combined Family Benefits, Women with Husband Observed, Women First Observed Age 70 or Older, OLS Born 1918-1942Born 1925-1940 Dependent Variable:Annual Family Benefits (1)(2) Less than Age 70 in 20002,522.25***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 652,735.20***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 Observations1,7861,644 1.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.

17. 17 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 1918-1942Born 1925-1940Born 1918-1942Born 1925-1940 Dependent Variable: Annual 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 Claiming475.40*** 462.21***431.74***415.99*** Benefits in Months (endogenous)(83.79) (84.63)(75.14)(76.62) FRA Greater than Age 651,954.55** 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) Instruments Less 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 2000 Minimum Eigenvalue Statistic21.49 (7.03)19.44 (7.03)5.91 (3.64)5.20 (3.64) Number of Observations1,7861,6441,7861,644

18. 18 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- 1942 Born 1925- 1940 Born 1918-1942Born 1925-1940 Dependent variable: Living in poverty Living below 200% of poverty line (1)(2)(3)(4) Less than age 70 in 20000.0013-0.0009-0.0290*-0.0243 (0.0056)(0.0053)(0.0169)(0.0166) Husband less than age 70-0.0037-0.00040.01820.0191 in 2000(0.0052)(0.0048)(0.0156)(0.0151) FRA greater than age 650.00930.00230.0131-0.0111 (0.0058)(0.0056)(0.0176)(0.0177) Husband’s FRA greater-0.0042-0.00200.0356*0.0106 than age 65(0.0070)(0.0071)(0.0210)(0.0221) Combined effect of husband-0.0024-0.0012-0.0108-0.0052 and wife less than age 70 in 2000 (0.0055)(0.0052)(0.0166)(0.0163) Number of observations1,7701,6351,7701,635 Those closer to 200% of poverty line more likely to be group that increases labor supply in response to elimination of RET?

19. 19 Effect of the 2000 Elimination RET on Poverty/Low Income, Women with Husband Observed, Women First Observed Age 70 or Older, 2SLS Born 1918- 1942 Born 1925- 1940 Born 1918- 1942 Born 1925- 1940 Dependent variable: Living in poverty Living below 200% of poverty line (1)(2)(3)(4) Age at claiming benefits -0.00020.00010.0027*0.0024 in months (endogenous) (0.0005) (0.0016) Husband’s age at claiming 0.00040.0001-0.0017-0.0018 benefits in months (endogenous) (0.0006) (0.0019)(0.0018) FRA greater than age 65 0.00850.00200.0131-0.0125 (0.0056)(0.0054)(0.0171)(0.0172) Husband’s FRA greater -0.0032-0.00190.03260.0057 than age 65 (0.0074)(0.0073)(0.0226)(0.0232) Combined effect of husband0.00030.00010.0010.0006 and wife less than age 70 in 2000(0.0006) (0.0019)(0.002) Instruments: Less than age 70 in 2000, husband less than age 70 in 2000 Minimum eigenvalue statistic20.17 (7.03)19.32 (7.03)20.17 (7.03)19.32 (7.03) First-stage estimateN.R. Number of observations1,7701,6351,7701,635

20. 20 Effect of the 2000 Elimination of RET on Poverty/Low Income, Women with Husband Observed, Women First Observed Age 75 or Older, OLS Born 1918- 1942 Born 1925- 1940 Born 1918-1942Born 1925-1940 Dependent variable: Living in poverty Living below 200% of poverty line (1)(2)(3)(4) Less than age 70 in 2000 0.00230.00220.02880.0382** (0.0050)(0.0053)(0.0180)(0.0183) Husband less than age 70 0.00300.00320.0058-0.0021 in 2000 (0.0052)(0.0054)(0.0186)(0.0187) Husband’s FRA greater -0.0112-0.01160.1242**0.1327*** than age 65 (0.0144)(0.0147)(0.0514)(0.0511) Combined effect of husband0.00530.00550.0346*0.0361* and wife less than age 70 in 2000 (0.0051)(0.0054)(0.0183)(0.0186) Number of observations 1,0501,0031,0501,003

21. 21 Effect of the 2000 Elimination of RET on Poverty/Low Income, Women with Husband Observed, Women First Observed Age 75 or Older, 2SLS Born 1918- 1942 Born 1925- 1940 Born 1918- 1942 Born 1925- 1940 Dependent variable: Living in poverty Living below 200% of poverty line (1)(2)(3)(4) Age at claiming benefits -0.0002 -0.0027-0.0043** in months (endogenous) (0.0005)(0.0006)(0.0018)(0.0022) Husband’s age at claiming -0.0004 -0.0011-0.0004 benefits in months (endogenous) (0.0006) (0.0020)(0.0022) Husband’s FRA greater -0.0094-0.00980.1378***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: Less than age 70 in 2000, husband less than age 70 in 2000 Minimum eigenvalue statistic15.93 (7.03)14.35 (7.03)15.93 (7.03)14.35 (7.03) First-stage estimateN.R. Number of observations 1,0501,0031,0501,003

22. 22 Effect of the 2000 Elimination of RET on Poverty/Low Income, Women First Observed Age 70 or Older, OLS/2SLS OLS Born 1918- 1942 Born 1925- 1940 Born 1918- 1942 Born 1925- 1940 Dependent variable: Living in poverty Living below 200% of poverty 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 0.01200.00180.0632***0.0369** (0.0078)(0.0081)(0.0153)(0.0165) IV Age at claiming benefits0.0016**0.0015*0.0058***0.0070*** in months (endogenous)(0.0008)(0.0009)(0.0016)(0.0020) FRA greater than age 650.0092-0.00180.0527***0.0200 (0.0075)(0.0077)(0.0154)(0.0170) Instruments: Less than age 70 in 2000, husband less than age 70 in 2000 Minimum eigenvalue statistic 122.8 (16.38) 88.48 (16.38)122.8 (16.38)88.48 (16.38) First-stage estimateN.R. Number of observations3,2722,9583,2722,958

23. 23 Effect of the 2000 Elimination of RET on Poverty/Low Income, Women First Observed Age 75 or Older, OLS/2SLS OLS Born 1918- 1942 Born 1925- 1940 Born 1918- 1942 Born 1925- 1940 Dependent variable: Living in poverty Living below 200% of poverty 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: Less than age 70 in 2000, husband less than age 70 in 2000 Minimum eigenvalue statistic 122.8 (16.38) 88.48 (16.38)122.8 (16.38)88.48 (16.38) First-stage estimateN.R. Number of observations3,2722,9583,2722,958

24. 24 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)

25. 25 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