Jae Song

Trends in Employment and Earnings of Allowed and Rejected Applicants to the Social Security Disability Insurance Program

Longitudinal administrative data show that rejected male applicants to the Disability Insurance (DI) program who are younger or have low-mortality impairments such as back pain and mental health problems exhibit substantial labor force attachment. While we confirm that employment rates of older rejected applicants are low, continued high numbers of younger and low-mortality beneficiaries have raised the potential employment of DI beneficiaries. Three findings support economic inducement to apply. Mean preapplication earnings have fallen, rejected applicants experience preapplication declines in earnings, and beneficiaries whose first applications were rejected at the DDS level but who ultimately received benefits exhibit substantial employment. (JEL: H55, J14, J28, J31)

What Do Data on Millions of U.S. Workers Reveal about Life-Cycle Earnings Risk?

We study individual earnings dynamics over the life cycle using panel data on millions of U.S. workers. Using nonparametric methods, we first show that the distribution of earnings changes exhibits substantial deviations from lognormality, such as negative skewness and very high kurtosis. Further, the extent of these nonnormalities varies significantly with age and earnings level, peaking around age 50 and between the 70th and 90th percentiles of the earnings distribution. Second, we estimate nonparametric impulse response functions and find important asymmetries: positive changes for high-income individuals are quite transitory, whereas negative ones are very persistent; the opposite is true for low-income individuals. Third, we turn to long-run outcomes and find substantial heterogeneity in the cumulative growth rates of earnings and total years individuals spend nonemployed between ages 25 and 55. Finally, by targeting these rich sets of moments, we estimate stochastic processes for earnings that range from the simple to the complex. Our preferred specification features normal mixture innovations to both persistent and transitory components and includes long-term nonemployment shocks with a realization probability that varies with age and earnings.

Stylized Facts and Incentive Effects Related to Claiming of Retirement Benefits Based on Social Security Administration Data

We rely on the Master Beneficiary File to document a number of facts regarding claiming of Social Security benefits and quality of date of birth data in administrative files. We then assess the impact of changes in retirement incentives that have taken place since 2000 on claiming. We find evidence of non-trivial misreporting or clerical errors in the dates of births that give rise to systematic patterns but nevertheless appear to be fairly random. We also confirm significant tendency to claim in January or on birthdays, but we find that these patterns are still sensitive to incentive effects. Relying on the discontinuity in the Early Entitlement Age that occurs for people born on the second day of any month, we find evidence that people do not have singlepeaked preferences over claiming age: relaxing the early retirement constraint leads to acceleration of retirement by some people for whom the constraint would not be otherwise binding. One possible explanation for this pattern is a preference for retiring at ones birthday. We take advantage of a change in the full retirement age and find that there remains unusually large (relative to other birthdays) number of people who claim around their 65th birthday, supporting the idea that Medicare eligibility has an impact on claiming retirement benefits. Finally, we confirm that elimination of the earnings test in 2000 for those above full retirement age accelerated retirements and find that it also led to a significant weakening of the January effect in that group, bolstering the idea that the January effect is sensitive to economic incentives.

Macroeconomic Determinants of Retirement Timing

We analyze lifetime earnings histories of white males during 1960-2010 and categorize the labor force status of every worker as either working full-time, partially retired or fully retired. We find that the fraction of partially retired workers has risen dramatically (from virtually 0 to 15 percent for 60-62 year olds), and that the duration of partial retirement spells has been steadily increasing. We estimate the response of retirement timing to variations in unemployment rate, inflation and housing prices. Flows into both full and partial retirement increase significantly when the unemployment rate rises. Workers around normal retirement age are especially sensitive to variations in the unemployment rate. Workers who are partially retired show a differential response to a high unemployment rate: younger workers increase their partial retirement spell, while older workers accelerate their transition to full retirement. We also find that high inflation discourages full-time work and encourages partial and full retirement. Housing prices do not have a significant impact on retirement timing.

Revisiting the 1983 Social Security Reforms, 25 Years Later

The authors examined changes in the ages at which people claim Social Security retirement benefits in response to the 1983 Social Security reforms, which gradually increase the full retirement age (FRA). Data came from the 1% sample of Social Security administrative data that contains longitudinal earnings and benefit claim information. The results show that the response to the gradual increase in the FRA has occurred not only among those who are close to the FRA but also among those who are close to the early retirement age. An increase in the full retirement age of 12 months is estimated to decrease the probability of claiming benefits at age 62 by about eight percentage points.

Evaluating the Effects of the Removal of the Retirement Earnings Test in 2000

This paper examines reactions in the labor force activity of workers aged 65-69 in response to the 2000 removal of the retirement earnings test (RET), using Social Security administrative data matched with Survey of Income and Program Participation (SIPP) data. This paper used a percentile-based difference-in-differences model to capture uneven impacts across the earnings distribution. Results indicate that after the RET removal, earnings of those in the higher percentiles of the earnings distribution increased, while earnings of those in the lower percentiles did not. There is no clear evidence that the RET removal increased the labor force participation (employment) rate, but acceleration of benefits applications among older workers was evident.

Bad Credit, No Problem? Credit and Labor Market Consequences of Bad Credit Reports

Credit reports are used in nearly all consumer lending decisions and, increasingly, in hiring decisions in the labor market, but the impact of a bad credit report is largely unknown. We study the effects of credit reports on financial and labor market outcomes using a difference-in-differences research design that compares changes in outcomes over time for Chapter 13 filers, whose personal bankruptcy flags are removed from credit reports after 7 years, to changes for Chapter 7 filers, whose personal bankruptcy flags are removed from credit reports after 10 years. Using credit bureau data, we show that the removal of a Chapter 13 bankruptcy flag leads to a large increase in credit scores, and an economically significant increase in credit card balances and mortgage borrowing. We study labor market effects using administrative tax records linked to personal bankruptcy records. In sharp contrast to the credit market effects, we estimate a precise zero effect of flag removal on employment and earnings outcomes. We conclude that credit reports are important for credit market outcomes, where they are the primary source of information used to screen applicants, but are of limited consequence for labor market outcomes, where employers rely on a much broader set of screening mechanisms.

Technological Progress and the Earnings of Older Workers

Economists’ standard model assumes that improvements in total factor productivity (TFP) raise the marginal product of labor for all workers evenly. This paper uses an earnings dynamics regression model to study whether, in practice, older workers benefit less from TFP growth than younger workers. We utilize panel earnings data from the Social Security Administration’s Continuous Work History Sample. The data include workers of all ages, and we use annual figures for 1950-2004. Our first specification relies on BLS measurements of TFP. Our second model develops a new TFP measure using a principal components analysis. We find that although the earnings of younger workers track TFP growth 1-for-1, the earnings of older workers do not: we find, for example, that a 60-year-old male’s earnings grow only 85-90% as fast as TFP. Nevertheless, our analysis implies that in an economy with an aging labor force, gains from experience tend to outweigh older workers’ inability to benefit fully from TFP improvements.

The Employment Effects of Social Security Disability Insurance in the Past 25 Years

We use administrative longitudinal data on earnings, impairment, and mortality to replicate and extend Bound’s seminal study of rejected applicants to federal Disability Insurance (DI). We confirm Bound’s main result that rejected older male applicants do not exhibit substantial labor force participation. We show this result is stable over time, robust to more narrow control groups, and similar within gender, impairment, industry, and earnings groups. However, we also find that younger rejected applicants have substantial employment after application. To what extent this translates into potential employment for new beneficiaries depends on which group among them is considered “on the margin” of receiving DI. If we use initially rejected applicants – a large and growing fraction of new beneficiaries – the resulting counterfactual employment rate for younger applicants is low, too. We also find that rejected applicants bear signs of economically induced applicants. DI appears to induce a growing number of less successful workers to apply, an important fraction of which ends up without benefits and non-employed. 1 This research was supported by the U.S. Social Security Administration through grant #10-P-98363-1-05 to the National Bureau of Economic Research as part of the SSA Retirement Research Consortium. The findings and conclusions expressed are solely those of the authors and do not represent the views of SSA, any agency of the Federal Government, or the NBER.

Long-Term Earnings Losses Due to Job Separation During the 1982 Recession

We present new estimates of the long-run earnings consequences of job separations that occurred during the 1982 recession based on a representative sample of workers drawn from Social Security administrative earnings data ranging from 1974 to 2005. Workers permanently leaving their long-term employer in the period from 1980 to 1985 experienced large and persistent earnings reductions lasting 15 to 20 years compared to workers of similar age and earnings potential who did not leave their employer. Earnings losses last up to 15 years even for workers displaced in better economic times or after shorter job tenure. These losses arise both due to reductions in employment as well as to reductions in annual earnings for those working. These preliminary estimates appear to confirm results from single U.S. states or limited time periods suggesting that job loss can be very costly for affected workers.