THE PERCEIVED BUDGET CONSTRAINT UNDER SOCIAL-SECURITY - EVIDENCE FROMREENTRY BEHAVIOR

If, as is usually assumed, older individuals face a continuous choice of work hours without fixed costs or take account of the actuarial adj ustment of Social Security benefits postponed as a result of the earni ngs test, the earnings limit should not affect their labor supply befo re age 65. We test, and reject, these assumptions by estimating the ha zard function for labor market reentry after retirement, using white m en in the Retirement History Survey. We find that the earnings limit d oes affect reentry and that older men behave myopically, responding to current benefits rather than to Social Security wealth. Several polic y implications follow.