Description: Macro-Micro Reading Group

Location: 368A Heady Hall

Contact: John Winters

Title: Precautionary Retirement

Abstract: With Social Security's trust fund facing depletion, this paper studies how the system's regressive payroll tax shapes labor supply and retirement decision, motivated by an observation that high-income older males work more. We develop a tractable labor supply model with heterogeneous work-costs, demonstrating that the elasticity of labor supply to financial incentives is inherently distributional. High-income workers, further from retirement cutoff, primarily adjust their hours (intensive margin), while those with higher work-costs adjust participation (extensive margin). Our central contribution is the measurement of these income group-specific elasticities, providing a framework to evaluate the distributional effects of policy reforms.