RESPONSES TO SOCIAL-SECURITY BY MEN AND WOMEN - MYOPIC AND FARSIGHTEDBEHAVIOR

The labor supply response to critical aspects of the Social Security p rogram depends on whether behavior is ''myopic'' (conditioned by curre nt benefits only) or ''far-sighted'' (conditioned by the entire future benefit stream). This behavior reflects attitudes toward risk and abi lity to borrow, as well as underlying time preferences. The individual 's effective time horizon is treated as an empirical question in this paper. Responses to the Social Security earnings test and the delayed retirement credit are examined, as well as the question of whether old er men and women are able to work while keeping their earnings below t he exempt earnings limit, in other words, whether the earnings test af fects participation as well as hours of work. Hazard functions for lab or market reentry after retirement are estimated using the Longitudina l Retirement History Study. We find striking gender differences, in th at women respond to Social Security wealth and are not deterred from w orking by the earnings test, while men respond to current benefits and their labor force participation is impeded by the test. Increases in the delayed retirement credit, as provided by the 1983 amendments to t he Social Security Act, should therefore increase the labor supply of older women but not of men, though its intention was to increase the s upply of both; however, increasing or abolishing the earnings limit, a s proposed in Congress, would increase older men's participation but n ot that of older women.