Welfare for the Elderly: The Effects of SSI on Pre-Retirement Labor Supply

The elderly are one of the exceptional groups in American society with access to a significant cash safety net, a means-tested program called Supplemental Security Income (SSI). Little attention has been paid to the pre-eligibility-age labor market disincentives created by such a program. In particular, asset and income limits might induce individuals nearing the eligibility age to work less. There is little if any hard evidence on such incentive effects. We exploit variation in states' supplementation of the federal SSI benefit to estimate the effects of the SSI program on pre-retirement labor supply, using data from the 1984, 1990, and 1991 panels of the Survey of Income and Program Participation. 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 that of men who have reached the age of eligibility for early Social Security benefits, which may be used to offset their reduced labor income.