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Title: The Effect of Social Security on Labor Supply: A Cohort Analysis of the Notch Generation
Authors: Krueger, Alan B.
Pischke, Jorn-Steffen
Keywords: social security
labor supply
income effect
Issue Date: 1-Jul-1989
Citation: Journal of Labor Economics, Vol 10, no.2, October, 1992
Series/Report no.: Working Papers (Princeton University. Industrial Relations Section) ; 255
Abstract: This paper uses aggregate birth year/calendar year level data derived from the Current Population Survey (CPS) to estimate the effect of Social Security wealth on the labor supply of older men in the l970s and 1980s. The analysis focuses on the 1977 amendments to the Social Security Act which lead to a substantial, unanticipated differential in benefits for otherwise identical individuals depending on whether they were born before or after 1917. This differential has become known as the benefit notch. There are two principal differences between the present analysis and the previous literature. First, this paper uses time-series variations in benefit levels to estimate the relationship between benefits and labor supply in an era when real benefits were falling for new recipients. Second, variation in benefit levels across cohorts is used to estimate the relationship between benefits and labor supply. The results support a conclusion that labor supply continued to decline for the "notch babies" who received lower Social Security benefits than earlier cohorts.
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