Government Old-Age Support and Labor Supply: Evidence from the Old Age Assistance Program
- American Economic Review (Forthcoming)
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 half of its 1930–40 decline—but that OAA’s implicit taxation of earnings imposed only small welfare costs on recipients.
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