Government Old-Age Support and Labor Supply: Evidence from the Old Age Assistance Program

Abstract

Many government programs transfer resources to older people and implicitly or explicitly tax their labor. We shed new light on the labor supply and welfare effects of such programs by investigating the Old Age Assistance Program (OAA). Exploiting the large differences in OAA programs across states and Census data on the entire US population in 1940, we find that OAA reduced the labor force participation rate among men aged 65–74 by 8.5 percentage points, more than one-half of its 1930–1940 decline, but that OAA’s implicit taxation of earnings imposed only small welfare costs on recipients. (JEL H24, H55, H75, J14, J22)

The Effect of Non-Contributory Pensions on Labour Supply and Private Income Transfers: Evidence from Singapore

“…Apart from evaluating an important new pension reform in Singapore, our paper contributes to the literature on the effects of non-contributory pensions on the labour market. In our paper, the estimated effect of the SSS on participation in paid work is lower (close to zero, and statistically insignificant) than the fall of 4 to 6 percentage points that many other studies on non-contributory pensions find (Aguila et al 2011;Bando et al 2016;Cheng et al 2018;Fetter and Lockwood 2016;Galiani et al 2016; Hernani-Limarino and Mena 2015; Juárez and Pfutze 2015). 6 Interestingly, and Bando et al (2016) find no effects on overall labour supply about 1 year after a non-contributory pension was rolled out in Mexico and Peru respectively, as there was a shift from paid work to unpaid work.…”

Local government and old-age support in the New Deal

“…The spirit of this approach is to make comparisons of areas that follow different policies, but that are similar in terms of underlying need or other characteristics that may lead to greater levels of OAA for a given state policy. This strategy follows Fetter and Lockwood (2016), who show that across states, OAA generosity in 1939 was correlated with underlying trends in labor force participation, but that there is no evidence of differential underlying trends in labor force participation once comparisons are limited to counties on either side of a state border.…”

“…The main empirical estimates use this cross-state policy variation to investigate the relationship between statutory local funding shares and the amount of OAA provided in 1939. Because state policies were correlated with levels of need, and levels of need also influenced the level of relief provided, the empirical strategy follows Fetter and Lockwood (2016) in focusing on comparisons across state borders in order to control flexibly for differences in aggregate shocks and population characteristics. The estimates indicate an economically and statistically significant negative relationship between local funding shares and OAA payments per person, driven primarily by a reduction in the share of the elderly receiving OAA and, to a much lesser extent, by reductions in payments per OAA recipient.…”

“…The basic difficulty in answering this question is that there is no large source of microdata from this period that directly measures OAA receipt. However, in a spirit similar to Fetter and Lockwood (2016), I show that the 1940 Census question on receipt of non-wage income can be used to construct a reasonable proxy for OAA recipiency at the county level, using the complete-count Census data for 1940 (Ruggles et al, 2015). After validating this measure, I use it to investigate the relationship between local funding and the representation of blacks among OAA recipients relative to their share in the population.…”

“…The instructions to enumerators indicated that non-wage income included, among other things, income from business profits or professional fees, income from roomers or boarders, cash relief payments, regular contributions from family members not in the same household, in-kind income, and commodities consumed from the individual's own business. In part the approach I take here follows the spirit ofFetter and Lockwood (2016), which documents that receipt of non-wage income increases discretely at age 65, and more so in states with larger OAA programs.…”