Earnings Responses to Social Security Contributions: Evidence from Older Workers in Canada

This paper documents sharp bunching in third-party reported employment earnings at a basic exemption for social security contributions among older workers. Beginning in 2012, workers age 60-64 who were receiving a public pension were required to make social security contributions equal to 9.9 percent of their employment earnings above a basic exemption threshold of $3,500. Using administrative data on third-party reported earnings and a differences-in- bunching estimator we document sharp bunching at the $3,500 threshold. We argue that our results represent new evidence on the role of firms in mediating the earnings response to payroll taxes.