Labor Supply Effects of the Recent Social Security Benefit Cuts: Empirical Estimates Using Cohort Discontinuities

Giovanni Mastrobuoni, Collegio Carlo Alberto

In response to an earlier "crisis" in Social Security financing two decades ago the U.S. Congress implemented an increase in the Normal Retirement Age (NRA) of two months per year for cohorts born in 1938 and after. These cohorts began reaching retirement age in 2000. In this paper I study the effects of these benefit cuts on recent retirement behavior. The evidence strongly suggests that the mean retirement age of the affected cohorts has increased by about half as much as the increase in the NRA. If older workers continue to increase their labor supply, there will be important implications for the estimates of Social Security trust fund exhaustion that have played such a major role in recent discussions of Social Security reform.