Unanticipated net social security wealth's effect on the labor supply behavior of young male cohorts in full-time private employment and self-employment

A number of studies have investigated the social security system's effect on the work effort of older individuals. Indeed, Hurd (1990), in his review of studies that investigated social security's effect on early retirement, concluded that, while the empirical evidence is mixed, social security was the most plausible explanation for the increase in early retirement among older workers. It follows that a system which induces early retirement among older men may also influence the work behavior of young individuals. According to Burkhauser and Turner (1978) social security provisions, such as the earnings test, change a worker's lifetime wage pattern thereby inducing the substitution of market work from the taxed to the untaxed periods of the life-cycle. In addition, Burkhauser and Turner hypothesize that any wealth effect attributable to social security will also influence life-cycle work behavior.; It is the primary goal of this dissertation to investigate the social security system's effect on the work behavior of young men. To that end, net social security wealth (NSSW), defined as the difference between the net discounted present value of anticipated future social security benefits and the net discounted present value of anticipated future old age survivors insurance (OASI) payroll taxes, is the variable used to assess the system's effect on work behavior.; Data from the March Current Population Surveys (CPS) 1975–1993 are used to construct a synthetic panel data set. Under this approach mean cohort behavior is treated as individual behavior given a functional form that is linear in its parameters. Mean annual hours, earnings, gross wages, net wages, and net social security wealth estimates for men in full-time year-round private employment and self-employment were calculated from the March CPS data.; The empirical evidence suggests that the social security system influences the labor supply behavior of young full-time privately employed and self-employed men. These results reveal that a {dollar}10,000 decrease in mean NSSW will increase privately employed men's labor supply in the range of 8 to 16 mean annual hours per year. For self-employed men, a {dollar}1,000 decrease in mean NSSW will increase their labor supply in the range of 3 to 53 mean annual hours per year. These results are important from a policy standpoint as social security is financed on a partial reserve financing basis. Current OASI payroll taxes are used to finance beneficiary claims, thus a legislative change that influences the work behavior of young men will also influence the system's funding.