Association for Public Policy Analysis & Management

As population aging progresses around the world, a near-uniform policy prescription is to have older workers remain in the labor market until later ages. However, the Earned Income Tax Credit (EITC), the most important U.S. social program targeting extensive margin labor supply, largely excludes older workers and may in fact have indirect negative effects on their employment. Our primary research question is how the EITC affects older workers’ employment, labor force participation, and program participation in Social Security’s retirement and disability programs. Our goal is to examine the consequences of EITC eligibility and generosity, benefits paid to other household members, labor market spillovers, and eligibility restrictions (in particular, individuals over age 65 are ineligible for the EITC) for older workers. Our preliminary results suggest that the EITC reduces the employment, earnings, and labor force participation of older workers through negative labor market spillovers, while increasing early retirement and take-up of Social Security and Supplemental Security Income. The EITC’s gradual expansion since the 1970s may be responsible for an important share of the stagnation of labor force participation among older workers.