The objective of the proposed research is an increased understanding of the relationship between socioeconomic policy, individual characteristics such as health status, and the labor market behavior of older workers.
Our specific aim i s the assessment of the impact on the labor supply of older workers of modifications in the Social Security benefit formula, such as changes in the age at which full benefits can be received or in the actuarial adjustment for early or delayed retirement.
This aim will be met through the construction, estimation, and implementation of a model of labor market behavior that incorporates individual heterogeneity and that is designed to assess the impact of Social Security and other socioeconomic policy. The model incorporates recent methodological advances, and is characterized by five key features. (1) The model is fully structural and grounded in life-cycle optimizing behavior. (2) The model permits period-by-period decisions about labor supply and movements between labor market states. (3) All aspects of Social Security policy are modelled in complete detail, permitting examination of very specific changes in these policies. (4) Exact statistical inference about the effects of policy changes on the income and labor market behavior of older workers is provided. (5) The model incorporates both observed and unobserved heterogeneity; the absence of unobserved heterogeneity is a testable hypothesis. Taken together, these features provide the opportunity to ground the consideration of policy changes more firmly on an empirical foundation, and to provide appraisals in forms policymakers will find most useful. Upon completion, the project will also provide a methodological and empirical foundation for the subsequent investigation of other policies that affect the welfare of older Americans.
