The Social Security Earnings Test Removal. Money Saved or Money Spent by the Trust Fund?

Beneficiaries of Social Security face restrictions on how much they can earn without incurring the earnings test (ET). In 2000, President Clinton eliminated the ET between age 65 and 70. In this paper I evaluate how this removal impacts the long-term finances of the Trust Fund. I find that starting in 2006 the Social Security Administration is actually saving money and that the removal appears to be Pareto efficient. A removal of the remaining part of the ET is likely to be even less costly and to produce larger increases in labor supply and contributions.earnings test, social security, claiming, retirement

The Role of Information for Retirement Behavior: Evidence based on the Stepwise Introduction of the Social Security Statement

In 1995, the Social Security Administration started sending out the annual Social Security Statement. It contains information about the worker's estimated benefits at the ages 62, 65, and 70. I use this unique natural experiment to analyze the retirement and claiming decision making. First, I find that, despite the previous availability of information, the Statement has a significant impact on workers' knowledge about their benefits. These findings are consistent with a model where workers need to gather costly information in order to improve their retirement decision. Second, I use this exogenous variation in knowledge to analyze the optimality of workers' decisions. Several findings suggest that workers do not change their retirement behavior: i) Workers do not change their expected age of retirement after receiving the Statement; ii) monthly claiming patterns do not show any change after the introduction of the Social Security Statement; iii) workers do not become more sensitive to Social Security incentives after receiving the Statement. More research is needed to establish whether workers are already behaving optimally or they are not, but the information contained in the Statement is not sufficient to improve their retirement behavior.social security statements; retirement expectations; retirement behavior; social security incentives

Do better–informed workers make better retirement choices? A test based on the Social Security Statement

In 1995, the Social Security Administration started sending out the annual Social Security Statement. It contains information about the worker’s estimated benefits at the ages 62, 65, and 70. We use this unique natural experiment to analyze the retirement and claiming decision making. First, we find that, despite the previ- ous availability of information, the Statement has a significant impact on workers’ knowledge about their benefits. These findings are consistent with a model where workers need to gather costly information in order to improve their retirement deci- sion. Second, we use this exogenous variation in knowledge to analyze the optimality of workers’ decisions. We do not find an overall improvement in workers’ retirement behavior, but there are some changes among particular groups. Workers aged 62 and 65 become less sensitive to Social Security Incentives. Age 62 and 65 are the two ages at which the retirement benefits are reported in the Statement, which suggests that some workers may use them as focal points. Additionally, we find evidence that before the Statement was introduced uninformed workers, who are more likely to be low–educated and black, made, on average, worse retirement decisions, and that workers with a dependent spouse usually disregarded their own spouse’s benefits in their calculations. The information contained in the Statement appears to have helped both groups, though with the important exception of black workers.social security statements, retirement expectations, retirement behavior, social security incentives

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

In response to a "crisis" in Social Security financing two decades ago 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. This paper studies 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 in the same way, 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.normal retirement age, retirement behavior, social security reform

Do Social Security Statements Affect Knowledge and Behavior?

Deciding when to retire and claim Social Security benefits is one of the most important financial decisions that workers face. Therefore, ensuring that they have easy access to clear and timely information about their benefit options is a key goal for policymakers. In 1995, the Social Security Administration introduced the “Statement,” a record of past earnings and a summary of estimated benefits at selected claiming ages that is designed to help workers plan for retirement. The Statement is now mailed annually to all workers age 25 and over. While the Statement has the potential to be a very valuable tool, little research has been done on its impact. A Gallup survey revealed that individuals who had received a Statement had a significant increase in their understanding of basic Social Security features. The most recent U.S. Government Accountability Office report on the Statement found that 66 percent of workers remember receiving a Statement and 90 percent of these workers say that they remember the amount of estimated Social Security benefits. These findings suggest that the Statement might improve knowledge, but provide no information about whether it changes behavior. Both topics are the subject of this brief. This brief is organized as follows. The first section explains the data and methodology used in the analysis. The second and third sections present the findings on how the Statement impacts knowledge and behavior, respectively. The final section concludes that the Statement does increase knowledge for individuals who were not inclined to seek the information on their own, but the Statement does not appear to change behavior.

The Political Economy of the Disability Insurance. Theory and Evidence of Gubernatorial Learning from Social Security Administration Monitoring

The dramatic rise in the disability insurance (DI) roles in the last 20 years has been the subject of much controversy in both popular and academic circles. While, the relationship between DI and labor force participation has been the subject of a growing literature, the mechanism of this transition from employment to DI remains unclear. We hypothesize that one mechanism is the state-level administration of the program which creates a classic principal-agent problem. This paper analyzes the impact of continuing conflict of interests for Disability Determination Services agencies—between Social Security Administration standards and state gubernatorial political interests — interacted with the increased demand for disability insurance as an alternative for low-skilled works during the period of 1982 to 2000. We find evidence that multi-term governors allow a greater fraction of applicants than do first term governors. We then develop a model that illustrates how these differences can be due to the type of monitoring conducted by the Social Security Administration. We provide additional evidence supporting this hypothesis in the form of sub-group analysis by economic and political constraints. Overall, we find evidence that the monitoring system is counter-productive and encourages over-use of the disability insurance program to serve political ends.Disability insurance; principal-agent; social security administration; monitoring

Heterogeneity in Intra-Monthly Consumption Patterns, Self-Control, and Savings at Retirement

Using data from the Continuing Survey of Food Intake by Individuals, this paper describes the shape of consumption profiles over the month for Social Security benefit recipients. Individuals with income mostly made up of Social Security benefits and who have some savings smooth consumption over the pay period, while individuals with little savings consume 25 percent fewer calories the week before checks are received relative to the week after checks are received. The findings for individuals with little savings are inconsistent with the Permanent Income/Lifecycle Hypothesis, but are consistent with hyperbolic discounting.

Migration Restrictions and Criminal Behavior: Evidence from a Natural Experiment

We estimate the causal effect of immigrants' legal status on criminal behavior exploiting exogenous variation in migration restrictions across nationalities driven by the last round of the European Union enlargement. Unique individual-level data on a collective clemency bill enacted in Italy five months before the enlargement allow us to compare the post-release criminal record of inmates from new EU member countries with a control group of pardoned inmates from candidate EU member countries. Difference-in-differences in the probability of re-arrest between the two groups before and after the enlargement show that obtaining legal status lowers the recidivism of economically motivated offenders, but only in areas that provide relatively better labor market opportunities to legal immigrants. We provide a search-theoretic model of criminal behavior that is consistent with these results.Immigration, Crime, Legal Status

Understanding Organized Crime Networks: Evidence Based on Federal Bureau of Narcotics Secret Files on American Mafia

Using unique data on criminal profiles of 800 US Mafia members active in the 50s and 60s and on their connections within the Cosa Nostra network we analyze how the geometry of criminal ties between mobsters depends on family ties, community roots and ties, legal and illegal activities. We contrast our evidence with historical and sociological views about the functioning of the Mafia. Much of our findings are remarkably in line with these views, with interesting qualifications. We interpret some of our results in light of a model of optimal vertical and horizontal connections where more connections mean more profits but also a higher risk of defection. We find that variables that lower the risk of defection, among others, kinship, violence, and mafia culture increase the number of connections. Moreover, there is evidence of strategic endogamy: female children are as valuable as male ones, and being married to a "connected" wife is a strong predictor of leadership within the Mafia ranks. A very parsimonious regression model explains one third of the variability in the criminal ranking of the "men of honor," suggesting that these variables could be used to detect criminal leaders. An additional prediction of our simple model is a right-skewed distribution of the number of connections, which is remarkably in line with the evidence of an extremely hierarchical organization.Mafia; Networks; Intermarriage; Assortative Matching; Crime

Invalid Ballots and Electoral Competition

We study how the closeness of electoral race affect the number of invalid ballots under the traditional paper-ballot voting technology. Using a large dataset from the Italian parliamentary elections in 1994-2001, we find a strong positive correlation between the closeness of electoral race and the fraction of invalid ballots. This correlation is not driven by voters' behavior, the biased actions of election officers, or the strategic pressure by parties. The theory that garners most support is that of unbiased election officers that increase their effort in response to higher (expected) closeness of electoral race, so as to reduce the likelihood of incorrectly adjudicating the victory. We also find large North-South differences in the patterns of invalid ballots: (i) electoral districts and municipalities in Southern Italian regions have a substantially higher level of invalid ballots, and (ii) the correlation between the closeness of electoral race and the fraction of invalid ballots is absent in the South. Social capital and organized crime explain these differences: once these two features are accounted for, the districts and municipalities in the South behave similarly to those in the North.invalid ballots; electoral competition; social capital; voting technology; Italian parliamentary elections