Market Inefficiency and Household Labor Supply: Evidence from Social Security’s Survivors Benefits

By Itzik Fadlon, Shanthi Ramnath, Patricia Tong We study the effects of the Social Security survivors benefits program on household labor supply and the efficiency implications for insurance and credit markets. We use U.S. population tax records and exploit a sharp age discontinuity in benefit eligibility for identification. We find that eligibility induces considerable reductions in labor supply both among newly-widowed households in the immediate post-shock periods and among already-widowed households whose benefit receipt is entirely predictable. The evidence...