Revisiting the labor supply effect of social security earnings test: New evidence from its elimination and reinstatement in Japan

- The elimination of the social security earnings test and its reinstatement on labor supply are examined. The effects of changes in the earnings tests on the labor supply of the elderly are not symmetric. The repeal of the earnings test in 1985 did affect the earnings distribution of the elderly, while its reinstatement in 2002 partially did not.

We explore the labor supply effect of the social security earnings test in Japan on those aged 65-69 years through a combined examination of the elimination of the earnings test in 1985 and its reinstatement in 2002. We present evidence showing that the effects of changes in the earnings tests on the labor supply of the elderly are not symmetric, controlling for changes in the attributes of workers and firms. The repeal of the earnings test in 1985 did affect the earnings distribution of the elderly (especially for male), while its reinstatement in 2002 did not alter the earnings distribution.