This paper identifies the part-time wage effect using hours variation caused by the
Social Security rules. We show that work hours and wages drop sharply at ages 62 and
65. We argue that the hours decline causes the wage decline, resulting in a 25 percent
wage penalty for men who cut their workweek from 40 to 20 hours. However, we find
little evidence for such an effect among women. We also show that models that fail to
account for the joint determination of hours and wages will understate the labor supply
response to a tax change by about 26 percent.