Differentiation Requires Continuous Regulation

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Framing social security reform: Behavioral responses to changes in the full retirement age

We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two month increments per year of birth for cohorts born from 1938 to 1943. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment are less clear-cut, but go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion. We develop a simple labor supply model with reference dependence that can explain the results. The model has potentially important implications for framing of future Social Security reforms.social security ; framing ; loss aversion ; retirement

Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age

We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two month increments per year of birth for cohorts born from 1938 to 1943. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment are less clear-cut, but go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion. We develop a simple labor supply model with reference dependence that can explain the results. The model has potentially important implications for framing of future Social Security reforms.retirement, social security, loss aversion

The Role of Retiree Health Insurance in the Employment Behavior of Older Men

We model the employment and medical care decisions of older men who face health risk. The budget constraint incorporates detailed characteristics of health insurance as well as Social Security and private pensions. A man whose health insurance is tied to continued employment with his current employer faces the risk of large medical expenditures in the event of an adverse health shock if he retires before becoming eligible for Medicare at age 65. A man whose employer provides retiree health insurance or who has access to other health insurance not tied to his employment decision (e.g., from his wife) can retire before age 65 without consequences for his health insurance coverage. We use data from the Health and Retirement Survey to estimate the parameters of the model using structural methods. Simulations based on the estimates imply that changes in health insurance, including access and restrictions to retiree health insurance and Medicare have a modest impact on employment behavior among older males.

The Supply of Quality in Child Care Centers

We use data from a sample of day care centers to estimate the relationships between cost and the quality of the child care service provided, and between revenue and quality. We use a measure of child care quality derived from an instrument designed by developmental psychologists. This measure of quality has been found to be positively associated with child development. Taking the estimated cost-quality and revenue-quality relationships as given, we then estimate the objective functions of the firms and compute the supply function for quality. The results indicate that (1) the estimated cost function is inconsistent with the implications of cost-minimization; (2) for-profit firms operate at a positive level of marginal cost, but non-profit firms operate at zero or negative marginal cost; (3) revenue is positively but weakly associated with quality; and (4) the supply of quality is inelastic, with point estimates of the supply elasticity of .04-.05 for both for-profit and non-profit firms. Implications of the results for child care policy are discussed.

What Determines Family Structure?

We estimate the effects of policy and labor market variables on the fertility, union formation and dissolution, type of union (cohabiting versus married), and partner choices of the NLSY79 cohort of women. These demographic behaviors interact to determine the family structure experienced by the children of these women: living with the biological mother and the married or cohabiting biological father, a married or cohabiting step father, or no man. We find that the average wage rates available to men and women have substantial effects on family structure for children of black and Hispanic mothers, but not for whites. The tax treatment of children also affects family structure. Implementation of welfare reform and passage of unilateral divorce laws had much smaller effects on family structure for the children of this cohort of women, as did changes in welfare benefits. The estimates imply that observed changes from the 1970s to the 2000s in the policy and labor market variables considered here contributed to a reduction in the proportion of time spent living without a father by children of the NLSY79 cohort of women. This suggests that the observed increase in this non-traditional family structure in the U.S. in the last three decades was caused by other factors.family structure

The Supply of Quality in Child Care Centers

We use data from a sample of child care centers to estimate the relationships between cost and child care quality, and between revenue and quality. We use a measure of child care quality, designed by developmental psychologists, that is positively associated with child development. Taking the estimated cost-quality and revenue-quality relationships as given, we estimate the objective functions of firms and compute the quality supply function. The results indicate that the supply of quality is moderately elastic with respect to price and the wages of child care center workers. Implications of the results for child care policy are discussed. © 2002 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolo

Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age

We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two month increments per year of birth for cohorts born from 1938 to 1943. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment are less clear-cut, but go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion. We develop a simple labor supply model with reference dependence that can explain the results. The model has potentially important implications for framing of future Social Security reforms. JEL: J26