رفاه برای سالمندان: اثرات SSI بر عرضه نیروی کار قبل از بازنشستگی

This paper studies pre-eligibility-age labor market disincentives created by the Supplemental Security Income (SSI) program. Asset and income limits might induce individuals nearing the eligibility age to work less. We exploit states’ supplementation of federal SSI benefits to estimate the effects of SSI on pre-retirement labor supply, using SIPP data. We find some evidence that generous SSI benefits reduce the pre-retirement labor supply (and earnings) of men who are likely to participate in SSI after retirement, as they near the eligibility age, especially men who are eligible for early Social Security benefits, which may be used to offset their reduced labor income.

In recent years, the primary cash welfare program for families with children has been the object of intense scrutiny and debate, culminating in its radical overhaul in 1996. The case of this program, Aid to Families with Dependent Children (AFDC), contrasts markedly with that of aid to the elderly poor provided through another welfare program, Supplemental Security Income (SSI), which has received scant attention.1 A possible reason for this anomaly is that the public is more sanguine about how the contemporaneous work disincentives created by the existence of such a safety net affect the elderly, in contrast with younger groups such as families with children. However, little attention has been paid to the pre-eligibility-age labor market disincentives created by such a program. In particular, asset and income limits on eligibility for SSI might induce individuals nearing the eligibility age to reduce their labor supply. There is little if any hard evidence on such incentive effects, and this paper seeks to remedy this situation. There are two ways pre-eligibility-age work disincentives may arise due to the SSI program. Firstly, SSI’s income test discourages work prior to age 65. Since benefits are reduced or eliminated as post-retirement income increases, pension payments (including Social Security) reduce the potential SSI benefit. Some workers may have little incentive to continue working at older (pre-retirement) ages to increase private or public pension wealth further, as the extra post-retirement pension income crowds out SSI income. In addition, since SSI benefits are reduced or restricted on the basis of asset holdings at retirement through the asset test, the additional work needed to finance retirement savings is discouraged. Of course, the same sort of disincentive effects that affect labor supply may also affect saving, especially because of the asset test. In another paper (Neumark and Powers, 1998) we examine the effect of variation in SSI benefits on the saving of those approaching the eligibility age.2 In this paper, we exploit the variation across states in supplementary SSI benefits to obtain difference-in-difference estimates of the effects of SSI on pre-retirement labor supply.

We use state-level variation in the generosity of supplemental SSI payments to identify the effects of SSI for the aged on labor supply as men approach the age of eligibility for the program, studying a sample of male household heads. We find some evidence that SSI discourages work among men nearing the age of eligibility, as predicted given the way the SSI program penalizes post-65 income and assets. We look at evidence on effects of SSI on employment, hours, and family earnings. Across different specifications, samples, and estimators, the point estimates of the effects of SSI are almost always negative, although the statistical significance of the evidence varies. However, the preferred DDD estimates computed with the pooled data rather consistently indicate negative effects of SSI on employment and earnings of 60–64-year-old men. In addition, for these dependent variables there is evidence indicating that we are identifying real rather than spurious effects of SSI. In particular, we find that the estimated effects of SSI often vary as expected when we vary the level of benefits used to classify states as providing generous supplements, and when we vary the cut-off for identifying likely SSI participants. In our view, therefore, the evidence as a whole is most consistent with pre-retirement labor supply disincentives, although we repeat our caution emphasized in the paper that this inference is somewhat fragile. Finally, as we would expect from the interaction of SSI with Social Security, we find that the effects are strongest among those aged 62–64. One intriguing interpretation of this finding is that the availability of SSI at age 65 encourages likely SSI participants to retire at age 62, financing this retirement out of early Social Security benefits. This has implications for how we might restructure SSI to avoid this added burden on the Social Security system. In particular, reduced SSI benefits for those who take early Social Security, paralleling the relationship between Social Security benefits and age of retirement, would be expected to discourage this type of behavior. More concrete evidence on the relationship between SSI and Social Security awaits further research. This research also poses two further questions. First, can this finding be replicated in other data sets? It would be fruitful to explore similar evidence using other data sets. In particular, after more waves of the Health and Retirement Study are released, a large data set covering individuals right up to and past the age of eligibility for SSI will be available. We plan to analyze these data when they become available. The second question concerns whether there are superior policies that avoid the disincentive effects of SSI. One possible mechanism for providing a minimum income floor for the elderly that has been broached in the context of the debate on Social Security reform is the ‘demogrant’ (Mitchell and Zeldes, 1996), which would provide a fixed, minimum guarantee to all of the elderly. Obviously such a program would be more expensive than SSI. But as part of a broader reform of Social Security the budget implications might be quite minimal, and it might successfully provide a minimum income floor while eliminating the disincentive effects of SSI on pre-retirement labor supply.