NCPA - National Center for Policy Analysis

Would People Behave Differently If They Better Understood Social Security?

July 24, 2015

The provisions of government tax, social insurance, and means-tested transfer programs create complex sets of incentives for individuals making labor supply, retirement and savings decisions. If individuals do not understand or do not otherwise come to correctly perceive the incentives, they may make poor economic decisions and may also fail to participate effectively as political actors. Decisions about when to retire and when to claim benefits can have large implications for well-being over many subsequent years.

NBER researchers conducted a randomized field experiment that provided information about key Social Security features to older workers. The experiment was designed to examine whether it is possible to affect individual behavior using a relatively inexpensive informational intervention about the provisions of a public program and to explore the mechanisms underlying the behavior change.

Jeffrey Liebman and Erzo Luttmer find that sending an informational brochure and an invitation to a web-tutorial increased labor force participation one year later by 4 percent.

  • Female respondents are 7.2 percentage points more likely to work if they received the information intervention, while men are only 0.2 percentage points more likely. Thus the effect seems to mainly be driven by women.
  • The information campaign appears to have increased labor force participation in substantial ways, meaning that there is more labor force participation even when participation is limited to those who worked more than 20 hours a month.

Information campaigns can be a relatively inexpensive tool for making individuals more responsive to incentives and improving well-being. The researchers also state that simplifying Social Security would also make people respond more to the incentives of the program.

Source: Jeffrey B. Leibman and Erzo F. P. Luttmer,
"Would People Behave Differently If They Better Understood Social Security? Evidence from a Field Experiment," American Economic Journal: Economic Policy, February 2015.

 

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