The Role of Social Security Benefits in the Initial Increase of Older Women’s Employment Rate: Evidence from the Social Security Notch

To understand trends in elderly women's work decisions, a key question is the extent to which changes in Social Security have played a role. We estimate the effect of Social Security benefits on women's employment rate by examining the Social Security “Notch,” which cut women's average Old Age and Survivors Insurance (OASI) benefits substantially in the 1917 birth cohort relative to the 1916 cohort. This led to sharply different benefits for similar women born one day apart. Using Social Security Administration microdata on earnings in the full U.S. population by day of birth, we find evidence for substantial effects of this policy change on elderly women's employment rate. We find that the slowdown in the growth of Social Security benefits in the mid-1980s can account for around one-third of the increase in the growth of older women’s employment that occurred during this period. 1 We thank Claudia Goldin, Larry Katz, Erzo Luttmer and other participants in the Women Working Longer working group for helpful comments. We are grateful to Patricia Jonas and Gerald Ray at the Social Security Administration for their help and support. This paper does not necessarily reflect the views of the Social Security Administration or the U.S. Treasury. We thank the UC Berkeley IRLE, CGIF, CEDA, and Burch Center, NIH (2P30AG012839), and the Wharton Pension Research Council and Trio grant, for support. We are grateful to Nicole Danna, Gita DeVaney, Jonathan Holmes, and Harsha Mallajosyula for outstanding research assistance. All errors are our own.