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Minimum Wages, Retirement Timing, and Labor Supply

Matt Hampton, Evan Totty

We use linked survey-administrative data to study the impact of minimum wage increases on Social Security retirement benefit claiming behavior and labor supply for low-wage, older workers. The share of the labor force working for a rate of pay near the minimum wage increases for older ages near retirement, yet this population is typically ignored in the minimum wage literature. We first verify that we find the expected short-run effects of minimum wage increases on wages, earnings, and employment in the survey data. We then use linked administrative data to estimate hazard models of retirement benefit claiming and panel models of employment over ages 62-70. Individuals exposed to minimum wage increases during these ages delay their claiming of retirement benefits and do so by six months, on average. The delay appears to be driven by an interaction between the minimum wage and the Social Security earnings test. We also find that exposure to minimum wage increases leads to increased full-time and part-time employment during ages 62-70. We combine the claiming and employment outcomes to define partial and full retirement and find that minimum wage increases are associated with less full retirement and more partial retirement. These results suggest that increases in the minimum wage can enhance the financial well-being of low-wage older workers.


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