Social Security Earnings Test and the Labor Supply of the Elderly: New Evidence from Unique Survey Responses in Japan

Although there exists a large volume of literature on the subject, a consensus on the labor supply effects of the social security earnings test for the elderly has yet to be reached. This study proposes an alternative approach of utilizing direct responses to a survey on the earnings test, a unique feature of our dataset compiled by the Japanese Government, to provide new evidence on the sensitivity of the labor supply decision of workers aged between 60 and 64 with respect to the earnings test. Our empirical results show that a large proportion of these workers are discouraged from working or reduce their working hours, even after correcting for observed attributes of individuals who reported either affected or unaffected. In addition, the revision of the test rules in 1995 did not alter the labor supply of the elderly.