Essays On Retirement, Labor Supply, And Living Arrangements

287 Pages·2017·1.72 MB·English

University of South Carolina
Scholar Commons
Teses and Dissertations
2016
Essays On Retirement, Labor Supply, And Living
Arrangements
Anudeep Gill
University of South Carolina
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Gill, A.(2016). Essays On Retirement, Labor Supply, And Living Arrangements. (Doctoral dissertation). Retrieved from
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ESSAYS ON RETIREMENT, LABOR SUPPLY, AND LIVING ARRANGEMENTS

by

Anudeep Gill

Bachelor of Arts
Whitman College, 2006

Master of Arts
Binghamton University, 2010

Submitted in Partial Fulfillment of the Requirements

For the Degree of Doctor of Philosophy in

Economics

Darla Moore School of Business

University of South Carolina

2016

Accepted by:

McKinley L. Blackburn, Major Professor

Orgul D. Ozturk, Committee Member

Daniel B. Jones, Committee Member

Gregory R. Niehaus, Committee Member

Cheryl L. Addy, Vice Provost and Dean of the Graduate School
ABSTRACT
Three changes in the U.S. Social Security program affected recent cohorts of older
individuals: repeal of the earnings test, increases in the normal retirement age, and increases in
the delayed retirement credit. All three policy changes were expected to affect work decisions for
those eligible for social security benefits. The first two chapters of my dissertation assess the
impact of these policy changes. In the first chapter, using data from the Survey of Income
Program and Participation (SIPP) for the years 1996-2013, I study the influence of the three
policy changes on the retirement and benefit-claiming decisions of older men and women. There
is minimal evidence in the recent literature investigating the sensitivity of estimated responses to
the definition of retirement. In particular, I explore how responses to the policy changes differ
when assessed using an objective relative to a subjective definition of retirement. The evidence
from the empirical analysis indicates that the response to these policy changes is partly sensitive
to the retirement definition. I find no effect of recent policy changes on retirement based on a
labor force definition, while changes in the delayed retirement credit reduce self-reported
retirement among men and women above the normal retirement age. There is stronger evidence
of an effect of recent policy changes on the claiming behavior of older individuals. The earnings
test repeal raised claiming among men above the normal retirement age, and changes in the
delayed retirement credit reduced claiming among men and women who are directly affected.
The second chapter examines the influence of the earnings test on the labor supply
decisions of older workers. In analyzing the labor supply response to the earnings test, previous
researchers have used a static labor supply framework and ignored the possible influence of the
delayed retirement credit adjustments in mitigating the earnings test penalty. In contrast to the
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past research, I assess the labor supply response to the earnings test within a life-cycle model that
accounts for the delayed retirement credit adjustments. Using data from the SIPP covering years
1996-2013, I consider the effect on both labor force participation and hours of work. Two
potential responses to the policy changes have been relatively less studied: the intertemporal
response by individuals and the differential response by sub-groups of individuals who possibly
face liquidity constraints or misunderstand the rules of the earnings test. In my work, I provide
evidence on both these responses. I find evidence in support of the view that both men and
women perceive the earnings test as a tax, as older men and women above the normal retirement
age and below age 70 respond to the earnings test by reducing their labor force participation. For
working women, I also observe a reduction in the hours of work in response to the earning test,
which indicates the somewhat greater flexibility in the choice of hours of work that may be
available to women relative to men.
The third chapter draws on reports of a rise in the share of young people living with their
parents during and following the period after the 2007-2009 recession in the U.S. Previous
research has analyzed the relationship between changes in economic conditions and living
arrangements of young people by focusing on data based on infrequent (annual/biennial)
interviews. In my empirical analysis I use high frequency SIPP data for the years 1996-2013. I
examine the change in a young adult’s likelihood of living with a parent in response to changes in
local labor-market conditions, and further identify the breakdown of this change into young adults
returning home versus their changing their tendency to leave the parental home. Unlike, previous
researchers I find no robust evidence that poor labor markets conditions affect the living
arrangements of young adults.
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TABLE OF CONTENTS
ABSTRACT ........................................................................................................................... ii
LIST OF TABLES .................................................................................................................. vi
LIST OF FIGURES ...................................................................................................................x
CHAPTER 1 THE EFFECT OF RECENT CHANGES IN SOCIAL SECURITY ON RETIREMENT AND
CLAIMING DECISIONS OF OLDER WORKERS ............................................................................1

1.1. Introduction ....................................................................................................1
1.2. Background and Theoretical Predictions .......................................................4
1.3. Review of Previous Research .......................................................................23
1.4. Data and Specification of the Retirement Model .........................................29
1.5. Retirement Definitions and Descriptive Findings ........................................36
1.6. Method of Estimation ...................................................................................45
1.7. Findings from Estimation of Retirement Models .........................................47
1.8. Claiming Benefits as Primary Beneficiary ...................................................59
1.9. Summary ......................................................................................................70
CHAPTER 2 LIFE-CYCLE LABOR SUPPLY RESPONSE TO THE EARNINGS TEST .......................106
2.1. Introduction and Review of Previous Research .........................................106
2.2. Modifications to the Earnings Test ............................................................113
2.3. Perceptions of Earnings Test and Theoretical Predictions .........................119
2.4. Model Specification and Method of Estimation.........................................128
2.5. Data and Descriptive Findings ...................................................................135
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2.6. Regression Findings ...................................................................................139
2.7. Summary ....................................................................................................148
CHAPTER 3 LOCAL LABOR MARKET CONDITIONS AND LIVING ARRANGEMENTS OF YOUNG
PEOPLE ..............................................................................................................................170
................................................................................................................................................
3.1. Introduction ................................................................................................170
3.2. Theoretical and Empirical Framework .......................................................173
3.3. Review of Previous Literature ....................................................................178
3.4. Data and Descriptive Findings ...................................................................187
3.5. Empirical Methods .....................................................................................194
3.6. Estimation Results ......................................................................................205
3.7. Summary ....................................................................................................217
REFERENCES .....................................................................................................................251
APPENDIX A – RETIREMENT MODEL .................................................................................260
APPENDIX B – LABOR SUPPLY MODELS BY SUBGROUPS ....................................................267
APPENDIX C – MEASURES OF LOCAL LABOR AND RENTAL MARKETS AND DISCUSSION OF
WELFARE REFORM ...........................................................................................................271

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LIST OF TABLES
Table 1.1 Normal Retirement Age by Birth.......................................................................74
Table 1.2 Delayed Retirement Credit by Birth ..................................................................74
Table 1.3 Earnings Test Annual Threshold Amount and Tax Rate ...................................75
Table 1.4A Theoretical Predictions for impact on Probability of Retirement of recent
changes in Social Security Law .........................................................................................76

Table 1.4B Theoretical Predictions for impact on Probability of Retirement of recent
changes in Social Security Law .........................................................................................77

Table 1.5 Survey of Income Program and Participation (SIPP) Panel Details ..................78
Table 1.6 Retirement Definitions and Selection at Sampling Wave .................................79
Table 1.7 Total Number of Men under each Retirement Definition ..................................80
Table 1.8 Total Number of Women under each Retirement Definition ............................81
Table 1.9 Relationship between Retirement Definitions for Men .....................................82
Table 1.10A Descriptive Statistics for Men: Retirement due to withdrawal from Labor
Force ..................................................................................................................................83

Table 1.10B Descriptive Statistics for Men: Retirement due to withdrawal from Labor
Force ..................................................................................................................................84

Table 1.11 Estimates of Retirement Hazard for Men: Withdrawal from Labor Force ......85
Table 1.12 Partial Effects of Retirement Hazard: Withdrawal from Labor Force .............86
Table 1.13 Estimates of Retirement Hazard for Men: Self-Reported Retirement .............87
Table 1.14 Partial Effects of Retirement Hazard for Men: Self-Reported Retirement ......88
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Table 1.15 Robustness Check: Coefficient Estimates of Retirement Hazard for Men ......89
Table 1.16 Robustness Check: Estimates of Retirement Hazard for Women ...................90
Table 1.17 Claiming Definition and Selection into Initial Sample ....................................91
Table 1.18 Total Number of Men and Women at the time of first inclusion in the sample:
Claiming Definition ...........................................................................................................92

Table 1.19 Estimates of Claiming Hazard for Men ...........................................................93
Table 1.20 Partial Effects of Claiming Hazard for Men ....................................................94
Table 1.21 Estimates of Claiming Hazard for Women ......................................................95
Table 1.22 Estimates of Claiming Hazard for Men by Marital Status...............................96
Table 1.23 Estimates of Claiming Hazard for Women by Marital Status .........................97
Table 2.1 Features of Earnings Test and Actuarial Adjustments.....................................151
Table 2.2 Normal Retirement Age and Delayed Retirement Credit ................................152
Table 2.3 Impact on Labor Supply due to Changes in the Earnings Test and DRC ........153
Table 2.4 Descriptive Statistics for Men ..........................................................................154
Table 2.5 Estimates of Models for Men's Labor Force Participation: Age 62-74 ...........155
Table 2.6 Estimates of Models for Older Men's Labor Force Participation: Age 62-74
with Age-Specific Trends ................................................................................................156

Table 2.7 Estimates of Models for Men's Labor Force Participation: By Age-Group ....157
Table 2.8 Estimates of Models for Hours of Work for Older Men Age 62-74................158
Table 2.9 Estimates of Models for Hours of Work for Older Men: By Age-Group........159
Table 2.10 Estimates of Models for Men's Labor Supply by Education: Age 62-74 ......160
Table 2.11 Estimates of Models for Older Women's Labor Force Participation .............161
Table 2.12 Estimates of Models for Older Women: Ages 62-74 ....................................162
Table 2.13 Estimates of Models for Women's Labor Supply by Education ....................163
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Table 3.1A Early Research (pre-2007 data) ....................................................................220
Table 3.1B Early Research (pre-2007 data) .....................................................................221
Table 3.2A Recent Research (including post 2007-data) ................................................222
Table 3.2B Recent Research (including post 2007-data).................................................223
Table 3.3 Survey of Income Program and Participation Panel Details ............................224
Table 3.4 Young Men and Women's School Enrollment ................................................225
Table 3.5 Descriptive Statistics ........................................................................................226
Table 3.6 Estimates from State Panel Analysis of Living Arrangements ........................227
Table 3.7 Estimates from Individual-Level Analysis of Living Arrangements (Without
Individual Fixed Effects) .................................................................................................228

Table 3.8A Estimates from Individual Level Analysis of Living Arrangements (With
Individual Fixed Effects) Linear FE ................................................................................229

Table 3.8B Estimates from Individual Level Analysis of Living Arrangements (With
Individual Fixed Effects) Conditional Logit ....................................................................230

Table 3.9A Estimates from Individual Fixed Effects Analysis of Living Arrangements:
Ages 20-24 .......................................................................................................................231

Table 3.9B Estimates from Individual Fixed Effects Analysis of Living Arrangements:
Ages 25-29 .......................................................................................................................232

Table 3.10A Estimates from Individual Fixed Effects Analysis of Living Arrangements
by Gender: Men ...............................................................................................................233

Table 3.10B Estimates from Individual Fixed Effects Analysis of Living Arrangements
by Gender: Women ..........................................................................................................234

Table 3.11 Estimates from Individual Fixed Effects Analysis of Living Arrangements:
2008 – 2013......................................................................................................................235

Table 3.12A Estimates from Individual Fixed Effects Analysis of Living Arrangements:
2001-2013 (Linear FE) ....................................................................................................236

Table 3.12B Estimates from Individual Fixed Effects Analysis of Living Arrangements:
2001-2013 (Conditional Logit) ........................................................................................237
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Table 3.13A Dynamic Model: Discrete Time Hazard for Leaving Home (Coefficient
Estimates) .........................................................................................................................238

Table 3.13B Dynamic Model: Discrete Time Hazard for Leaving Home (Marginal
Effects) .............................................................................................................................239

Table 3.14 Dynamic Model: Estimates of Hazard for Leaving Home: By Age ..............240
Table 3.15 Dynamic Model: Estimates of Hazard for Leaving Home: By Gender .........241
Table 3.16A Dynamic Model: Discrete Time Hazard for Returning Home (Coefficient
Estimates) .........................................................................................................................242

Table 3.16B Dynamic Model: Discrete Time Hazard for Returning Home (Marginal
Effects) .............................................................................................................................243

Table 3.17 Dynamic Model: Estimates of Hazard for Returning Home: By Age ...........244
Table 3.18 Dynamic Model: Estimates of Hazard for Returning Home: By Gender ......245
Table 3.19 Dynamic Analysis of Changing State of Residence ......................................246
Table 3.20 Discrete Time Hazard for Leaving Home (Includes those who Change State of
Residence) ........................................................................................................................247

Table 3.21 Discrete Time Hazard for Returning Home (Includes those who Change State
of Residence) ...................................................................................................................248
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