The Role of Social Security Benefits in the Initial Increase of Older Women’s Employment: Evidence from the Social Security Notch

To understand trends in older women's work decisions, a key question is the extent to which changes in Social Security have played a role. We estimate the effect of Social Security benefits on women's employment rate by examining the Social Security “Notch,” which cut women's average Old Age and Survivors Insurance (OASI) benefits substantially in the 1917 birth cohort relative to the 1916 cohort. This led to sharply different benefits for similar women born one day apart. Using Social Security Administration microdata on earnings in the full U.S. population by day of birth, we find substantial effects of this policy change on older women's employment rate. We find that the slowdown in the growth of Social Security benefits in the mid-1980s can account for over one-quarter of the increase in the growth of older women’s employment that occurred during this period.