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E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
& P E N S I O N L A W
Vol. 4, No. 14: July 31, 2003
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Publisher: LSN Employment, Labor, Compensation & Pension Journals
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Editor: PAMELA PERUN
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Topic of This Issue:
Social Security
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T A B L E of C O N T E N T S
_________________________________________________________________
NEW and FORTHCOMING ARTICLES
"Sustainable Social Security: What Would it Cost?"
National Tax Journal, Vol. 56, No. 1, Part 1, pp. 27-43,
March 2003
RONALD D. LEE
University of California, Berkeley
Department of Demography
HISASHI YAMAGATA
University of California, Berkeley
Department of Demography
"Social Security Actuarial Balance and the Labor Force
Participation Rate"
EBRI Notes, Vol. 24, No. 5, May 2003
CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
WORKING PAPERS
"Fiscal Effects of Social Security Reform in the United States"
COURTNEY COILE
Wellesley College
Department of Economics
National Bureau of Economic Research (NBER)
JONATHAN GRUBER
Massachusetts Institute of Technology (MIT)
Department of Economics
National Bureau of Economic Research (NBER)
"'Will Social Security be there for You?': How Americans Perceive
their Benefits"
JEFF DOMINITZ
Carnegie Mellon University
H. John Heinz III School of Public Policy and
Management
JORDAN HEINZ
University of Pennsylvania
School of Law
CHARLES F. MANSKI
Northwestern University
Department of Economics
National Bureau of Economic Research (NBER)
"Is the Social Security Trust Fund Worth Anything?"
KENT SMETTERS
U.S. Department of Treasury
National Bureau of Economic Research (NBER)
University of Pennsylvania
Insurance & Risk Management Department
Congressional Budget Office
"Evaluating the Effects of the Removal of the Retirement Earnings
Test in 2000"
JAE G. SONG
United States of America
Social Security Administration
"Social Security and Democracy"
CASEY B. MULLIGAN
University of Chicago
National Bureau of Economic Research (NBER)
RICARD GIL
University of Chicago
Department of Economics
XAVIER SALA-I-MARTIN
Columbia University
Department of Economics
National Bureau of Economic Research (NBER)
Universitat Pompeu Fabra
Economia i Empresa
S S R N I N F O R M A T I O N
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N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Sustainable Social Security: What Would it Cost?"
National Tax Journal, Vol. 56, No. 1, Part 1, pp. 27-43,
March 2003
BY: RONALD D. LEE
University of California, Berkeley
Department of Demography
HISASHI YAMAGATA
University of California, Berkeley
Department of Demography
Contact: RONALD D. LEE
Email: Mailto:rlee@demog.berkeley.edu
Postal: University of California, Berkeley
Department of Demography
2232 Piedmont Avenue
Berkeley, CA 94720-2120 UNITED STATES
Co-Auth: HISASHI YAMAGATA
Email: Mailto:hy09@demog.berkeley.edu
Postal: University of California, Berkeley
Department of Demography
2232 Piedmont Avenue
Berkeley, CA 94720-2120 UNITED STATES
ABSTRACT:
The standard measure of the 75-year Social Security imbalance is
1.87 percent of payroll, but raising taxes this much would not
make finances sustainable. We consider exact and approximate
infinite horizon measures based on different strategies for
extending the projections past 75 years. These indicate
imbalances of 3.1 to 5.7 percent of payroll. We also suggest a
simpler common sense measure: the tax increase necessary to make
the Trust Fund Ratio equal in the 74th and 75th years. Under the
Trustees' mortality projection, it indicates 3.1 percent
imbalance, with a more rapid mortality decline of 4.2 percent.
All sustainability measures indicate greater imbalance than is
currently thought.
______________________________
"Social Security Actuarial Balance and the Labor Force
Participation Rate"
EBRI Notes, Vol. 24, No. 5, May 2003
BY: CRAIG COPELAND
Employee Benefit Research Institute (EBRI)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=413904
Other Electronic Document Delivery:
http://www.ebri.org
SSRN only offers technical support for papers
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Contact: CRAIG COPELAND
Email: Mailto:copeland@ebri.org
Postal: Employee Benefit Research Institute (EBRI)
Suite 600
2121 K Street, NW
Washington, DC 20037-1896 UNITED STATES
Phone: 202-775-6356
Fax: 202-775-6312
Paper Requests:
Contact Alicia Willis at Mailto:publications@ebri.org, or 2121 K
St., NW, Suite 600, Washington, DC 20037-1896.
Phone:(202)572-7422, Fax:(202)775-6312. Full-Text downloads are
available from SSRN Online for $7.50.
ABSTRACT:
An investigation of the impact of the assumed value of the labor
force participation rate on the Old-Age, Survivors Insurance and
Disability Insurance (OASDI) trust funds' actuarial balance
finds that further changes to the Social Security program -
beyond increased participation - will be needed to achieve a
sustainable funding level.
Keywords: Labor Force Participation, Social Security
Financing, Social Security Modeling
The PDF for the above title, published in the May 2003 issue
of EBRI Notes, also contains the fulltext of another May 2003
EBRI Notes article abstracted on SSRN: "Making Coverage
Decisions."
JEL Classification: H55
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Fiscal Effects of Social Security Reform in the United States"
BY: COURTNEY COILE
Wellesley College
Department of Economics
National Bureau of Economic Research (NBER)
JONATHAN GRUBER
Massachusetts Institute of Technology (MIT)
Department of Economics
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=394780
Other Electronic Document Delivery:
http://www.bc.edu/crr/papers/wp_2003-05.pdf
SSRN only offers technical support for papers
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Paper ID: Boston College Center for Retirement Research Working
Paper No. 2003-05
Date: April 2003
Contact: COURTNEY COILE
Email: Mailto:ccoile@wellesley.edu
Postal: Wellesley College
Department of Economics
106 Central Street
Wellesley, MA 02181 UNITED STATES
Phone: 781-283-2408
Fax: 781-283-2177
Co-Auth: JONATHAN GRUBER
Email: Mailto:gruberj@mit.edu
Postal: Massachusetts Institute of Technology (MIT)
Department of Economics
Room E52-355
50 Memorial Drive
Cambridge, MA 02142 UNITED STATES
Paper Requests:
Contact Amy Chasse, Communications Specialist, Center for
Retirement Research, Boston College, Fulton Hall 550, Chestnut
Hill, MA 02467-3808. Phone: (617)552-6783. Fax: (617)552-1750.
Mailto:chassea@bc.edu
ABSTRACT:
Social Security is the largest social insurance program in the
U.S., and has been shown to be a major determinant of the labor
supply decisions of older workers. As such, reforming the Social
Security system can have two fiscal impacts: a "mechanical"
effect through changing the rules on benefits entitlements or
taxation, and a "behavioral" effect through individual responses
to these changes in benefits or taxes. We build a simulation
model that computes these effects for major reforms to the
system, building on estimated retirement responses to changing
net Social Security entitlements. We then estimate the fiscal
impact of reform for the 1931-1941 cohort of workers represented
by the Health and Retirement Survey. We find that raising the
early and normal retirement age by three years would reduce net
costs for this cohort by roughly 30%, and that moving to a much
higher benefit level would raise net costs by roughly 55%.
Importantly, we find that in both cases the behavioral impacts
on net costs are relatively small, at most one-third, and
generally less than one-fifth of the total. The reason for these
small effects is that the U.S. Social Security system is roughly
actuarially fair, so that delaying or inducing retirement has
relatively little impact on system balances; most of the effects
that do arise are due to changes in general income and
consumption taxes.
______________________________
"'Will Social Security be there for You?': How Americans Perceive
their Benefits"
BY: JEFF DOMINITZ
Carnegie Mellon University
H. John Heinz III School of Public Policy and
Management
JORDAN HEINZ
University of Pennsylvania
School of Law
CHARLES F. MANSKI
Northwestern University
Department of Economics
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=418300
Paper ID: NBER Working Paper No. W9798
Date: June 2003
Contact: CHARLES F. MANSKI
Email: Mailto:CFMANSKI@NWU.EDU
Postal: Northwestern University
Department of Economics
2003 Sheridan Road
Evanston, IL 60208 UNITED STATES
Phone: 847-491-8223
Fax: 847-491-7001
Co-Auth: JEFF DOMINITZ
Email: Mailto:DOMINITZ@ANDREW.CMU.EDU
Postal: Carnegie Mellon University
H. John Heinz III School of Public Policy and
Management
Pittsburgh, PA 15213-3890 UNITED STATES
Co-Auth: JORDAN HEINZ
Email: Mailto:jheinz@law.upenn.edu
Postal: University of Pennsylvania
School of Law
3400 Chestnut Street
Philadelphia, PA 19104-6204 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
Americans may be uncertain of their future Social Security
benefits for several reasons, including uncertainty about their
future labor earnings, the formula now determining Social
Security benefits, and the future structure of the Social
Security system. To learn how Americans perceive their benefits,
we have elicited Social Security expectations from respondents
to the Survey of Economic Expectations. We have also performed a
more intensive face-to-face survey on a small sample of
respondents. We find clear and striking evidence of substantial
uncertainty and heterogeneity of beliefs about the long-term
existence of the Social Security system and about the level of
benefits provided should the system survive.
JEL Classification: H55, D84, E2
______________________________
"Is the Social Security Trust Fund Worth Anything?"
BY: KENT SMETTERS
U.S. Department of Treasury
National Bureau of Economic Research (NBER)
University of Pennsylvania
Insurance & Risk Management Department
Congressional Budget Office
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=425581
Paper ID: NBER Working Paper No. W9845
Date: July 2003
Contact: KENT SMETTERS
Email: Mailto:SMETTERS@WHARTON.UPENN.EDU
Postal: U.S. Department of Treasury
1500 Pennsylvania Avenue, NW
Arlington, VA 22219 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
With over $1 trillion in assets, the U.S. Social Security trust
fund is the largest pension reserve in the world, and
potentially a model for other developed countries facing future
financing problems. But are those assets actually 'worth
anything?' This question has generated a heated debate in the
U.S. as policymakers debate options for Social Security reform,
with the understanding that the characterization of the trust
fund influences these decisions. Some observers claim that the
trust fund is not worth anything while others argue that it is
valuable. However, different reasons are given for the same
position. This paper provides a unified conceptual framework for
thinking rigorously about the assets accumulated in the trust
fund. Multiple perspectives of the trust fund are identified and
are summarized under two categories: (I) storage technology
arguments and (II) ownership arguments. Storage technology
arguments focuses on whether the trust fund surpluses actually
reduce the level of debt held by the public or, alternatively,
are used to 'hide' smaller on-budget surpluses. Ownership
arguments focus on property rights, i.e., how trust fund credits
should be allocated regardless of whether they reduce the debt
held by the public. Only the storage technology argument can be
empirically tested, as we do herein. We find that there is no
empirical evidence supporting the claim that trust fund assets
have reduced the level of debt held by the public. In fact, the
evidence suggests just the opposite: trust fund assets have
probably increased the level of debt held by the public.
Moreover, the adoption of a 'unified budget' framework in the
late 1960s appears to play a statistically significant role in
this result. We show how this counterintuitive result can be
explained by a simple 'split the dollar game' where competition
between two political parties exploits the ignorance of voters
who don't understand that the government's reported budget
surplus actually includes the 'off-budget' Social Security
surplus. To be sure based on a limited annual time series (1949
- 2002) and so the results should be interpreted with caution.
But the empirical tests are, if anything, biased toward finding
a reduction in the level of debt held by the public, and not the
increase that we find.
JEL Classification: H5, H6
______________________________
"Evaluating the Effects of the Removal of the Retirement Earnings
Test in 2000"
BY: JAE G. SONG
United States of America
Social Security Administration
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=360962
Date: November 2002
Contact: JAE G. SONG
Email: Mailto:jae.song@ssa.gov
Postal: United States of America
Social Security Administration
Washington, DC 20254 UNITED STATES
Phone: 202-358-6403
Fax: 202-358-6192
ABSTRACT:
This paper examines reactions in the labor force activity of
workers aged 65-69 in response to the 2000 removal of the
retirement earnings test (RET), using Social Security
administrative data matched with Survey of Income and Program
Participation (SIPP) data. This paper used a percentile-based
difference-in-differences model to capture uneven impacts across
the earnings distribution. Results indicate that after the RET
removal, earnings of those in the higher percentiles of the
earnings distribution increased, while earnings of those in the
lower percentiles did not. There is no clear evidence that the
RET removal increased the labor force participation (employment)
rate, but acceleration of benefits applications among older
workers was evident.
Keywords: Social Security administrative data, Survey of
Income and Program Participation, difference-in-differences,
percentile regression
JEL Classification: J14, H55
______________________________
"Social Security and Democracy"
BY: CASEY B. MULLIGAN
University of Chicago
National Bureau of Economic Research (NBER)
RICARD GIL
University of Chicago
Department of Economics
XAVIER SALA-I-MARTIN
Columbia University
Department of Economics
National Bureau of Economic Research (NBER)
Universitat Pompeu Fabra
Economia i Empresa
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=320766
Paper ID: UPF Economics and Business Working Paper No. 621
Date: May 2002
Contact: CASEY B. MULLIGAN
Email: Mailto:c-mulligan@uchicago.edu
Postal: University of Chicago
1126 East 59th Street
Chicago, IL 60637 UNITED STATES
Phone: 773-702-9017
Fax: 773-702-8490
Co-Auth: RICARD GIL
Email: not available
Postal: University of Chicago
Department of Economics
1126 East 59th Street
Chicago, IL 60637 UNITED STATES
Co-Auth: XAVIER SALA-I-MARTIN
Email: Mailto:XS23@COLUMBIA.EDU
Postal: Columbia University
Department of Economics
420 W. 118th Street
New York, NY 10027 UNITED STATES
Paper Requests:
Please contact Ana Cano, Mailto:ana.cano@ajau.upf.es Postal:
Department of Economics, Universitat Pompeu Fabra, Ramon Trias
Fargas, 25-27 08005 Barcelona, Spain. Phone: 34 93 542 18 63.
Fax: 34-93 542 17 46.
ABSTRACT:
Many political economic theories use and emphasize the process
of voting in their explanation of the growth of Social Security,
government spending, and other public policies. But is there an
empirical connection between democracy and Social Security
program size or design? Using some new international data sets
to produce both country-panel econometric estimates as well as
case studies of South American and southern European countries,
we find that Social Security policy varies according to economic
and demographic factors, but that very different political
histories can result in the same Social Security policy. We find
little partial effect of democracy on the size of Social
Security budgets, on how those budgets are allocated, or how
economic and demographic factors affect Social Security. If
there is any observed difference, democracies spend a little
less of their GDP on Social Security, grow their budgets a bit
more slowly, and cap their payroll tax more often, than do
economically and demographically similar nondemocracies.
Democracies and nondemocracies are equally likely to have
benefit formulas inducing retirement and, conditional on GDP per
capita, equally likely to induce retirement with a retirement
test vs. an earnings test.
Keywords: Social Security, democracy, determinants of public
spending