Understanding the incentives for work and retirement

The U.S. Social Security system implicitly creates disincentives towards working long careers. Workers who are near retirement often gain little additional Social Security benefit from continued work because of particular features of the Social Security benefit formula. While the conventional wisdom is that net Social Security tax rates fall with age due to the discounting of future benefits for interest and mortality, the first chapter of this dissertation shows that the overwhelming pattern of implicit Social Security tax rates is increasing. The distinction comes mainly from incorporating two features of the system: only the highest 35 years of indexed earnings count towards Social Security benefits, and the benefit calculation does not distinguish between low-income earners who work long careers and high-income earners who work short careers. Marriage reduces primary earners' implicit tax rates, but raises the implicit tax rates faced by secondary earners. Because both older workers and secondary earners tend to have high labor supply elasticities, raising revenue from these workers has efficiency considerations. Thus, the effects of three policy changes on implicit Social Security tax rates are analyzed. These three changes, which can be achieved in a benefit- and revenue-neutral manner, create a pattern of implicit tax rates that are much less distortionary over the life cycle, eliminating the high implicit Social Security tax rates faced by many elderly workers.; The significant decrease in the labor force participation rates of older men in the second half of the twentieth century has not been fully explained by the literature, despite many studies that have analyzed the role of Social Security and pension incentives. The second chapter of this dissertation examines the influence of female labor force participation on male retirement to determine whether wives entering the labor force effectively "bought" their husbands an earlier retirement than they would have had otherwise. Results from a hazard rate model show that the husband's retirement hazard increases with the accumulated value of his wife's earnings. The increase in married women's earnings from 1965 to 2000 could account for approximately 17 percent of the earlier retirement experienced by men during this period.