Evan Soltas
Sep 13, 2015

Raising the Retirement Age

New advancements in linking have made it possible, and indeed easy, to determine the year of birth, and almost the month of birth, for individuals surveyed in the Current Population Survey.

In an important effort, three researchers at the Minnesota Population Center have made it substantially easier to track individuals over time through the Current Population Survey. While economists have known this was possible for the better part of twenty years, it's been both imperfect and time-consuming. This new linking tool makes linking much better and dramatically easier.

It could spark a wave of new research in the social sciences. In fact, I've realized it's easy to determine almost exactly the month and year of birth for about half of individuals who participate in the Current Population Survey.

Survey participants show up in two sets of four consecutive months, so there are six opportunities for their ages to change going from one month to another. If you're, say, 21 in August but 22 in September, then you must have had your birthday between August and September. (This is where the technicality of "almost" the month of birth comes in, since the U.S. government does surveys in the middle of the month.)

So, what can we use this for? Here's one application: What is the effect of changes in the full retirement age for Social Security on the labor-force participation of the elderly?

Starting in 2000, that age rose from 65 to 66 in increments of two months. It will start rising again 2017. Given this two-month pattern, it has been challenging to get sharp estimates of the effect of the age increases. (The best work I know of on this topic comes from Giovanni Mastrobuoni.)

Yet this effort gets much easier when you know birth year and month more precisely. That's because you can look at the change in labor-force participation in the months right around the retirement age. What we should see, as the retirement age has increased, is a "moving bump" in the labor force participation rate -- the jump should be at 65 years precisely for some, 65 years and two months for the next year, and so on.

And it turns out we do see that: There's a 7-percent drop in labor force participation right at the month of the full retirement age that has shifted out with the statutory increases. Since the majority of Americans have already retired by their mid-60s, this means that the full retirement age knocks out a substantial share (about a quarter) of the remaining elderly workforce.

Raising the retirement age, then, would keep some older workers working. Whether we should do that is, of course, an entirely different question -- one for voters, not economists, to answer.

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My dataset (15 MB) is available here.