The effect of the increase in social security’s full retirement age on unemployment among older adults

Abstract

Social Security began to gradually raised the Full Retirement Age (FRA) from 65 to 67 in 2000. While previous research has shown that this reform increased employment and labor supply among older adults, its impact on unemployment among older workers is limited. As employment rises among older individuals, there is an increased risk of facing periods of unemployment at older ages. In addition, people may experience longer unemployment spells if they choose to stay unemployed strategically in order to collect Unemployment Insurance (UI) benefits and delay claiming Social Security. This study uses data from the Current Population Survey (CPS) to examine the effect of raising the FRA on unemployment among older men born between 1932 and 1940. The findings indicate a slight increase in unemployment among cohorts with higher FRAs. However, this increase does not translate into longer unemployment spells. Instead, unemployed individuals aged 62 to 65 in the treated cohorts are more likely to move from unemployment to employment, rather than remaining unemployed or retiring. Moreover, there is no strong evidence of strategic use of UI. The results suggest that individuals subject to greater penalties for early Social Security claiming experience higher unemployment as they stay longer in the labor market, rather than through any strategic effort to collect UI benefits.