Social Security must be reformed

Today's Social Security system must be reformed not only because it will soon be in financial crisis but also because it is simply a bad deal for most Americans, this author believes. She argues that it should be transformed into a system of personal retirement accounts and uses the example of San Diego, which opted out of Social Security in 1981 and replaced it with a mandatory defined contribution program for city employees, to show the benefits of private accounts.     

A Critique of ‘Neoliberal Autonomy’: The Rhetoric of Ownership Society

The rhetoric of the Ownership Society defined by the Cato Institute has been integral to framing the motivation behind the Social Security reform introduced by George W. Bush. This motivational frame involves a fierce advocacy of what we will call ‘neoliberal autonomy’ in a Hayekian and Friedmanite sense. For Hayek and Friedman, the social adequacy component of Social Security is problematized in the name of self-reliance and individual choice, which rejects any authoritative standards as morally indefensible. Nevertheless, the rhetoric of the Ownership Society, though it glorifies the neoliberal notion of autonomy, does not explicitly question the moral basis of Social Security. Rather, by defining the terms of debate, it frames the meaning of Social Security along neoliberal lines in an attempt to make a supposedly detached economic case for private retirement accounts. In this ‘pro-privatization’ framework, the social adequacy component of the Social Security system fades away as individual equity, or actuarial fairness, comes to the fore as the chief theme. We suggest a ‘pro-social’ rhetoric that recognizes the pursuit of social standards as providing the element of autonomy.     

Social Security fixes--beware of conjurers!

Among the many proposals for reform, there is one that offers the best chance of truly solving Social Security's financial problems, these authors believe. That proposal would increase savings by requiring workers to invest an additional 2% of their covered wages in individual accounts. At retirement, 75% of the money would go toward buying the current level of Social Security benefits, and 25% would be given to the individual as an "extra" pension. Individuals, not the government, would control investment of these accounts.     

Social Security Benefit Uncertainty under Individual Accounts

Social Security reforms that include individual accounts change both the expected benefit and the benefit risk. This article uses a long-term stochastic forecasting model to estimate the distribution of expected benefits under a simple individual account, recognizing uncertainties in the current system. Introducing individual accounts increases the overall variability of benefit levels relative to current law; indeed the standard deviations of expected benefit gains exceed the level of those gains. The increase in uncertainty about benefit replacement rates is even larger, however, because individual accounts partially sever the link between earnings and benefits in the existing system. (JEL H55)     

Social Security Reform and Corporate Governance

Abstract

This paper considers implementation issues arising from potential reforms to the United States Social Security system. Many reform proposals involve individually invested accounts, but the corporate governance implications of such accounts have not been fully explored. Existing reform plans will result in a large fraction of votes being concentrated at one private fund manager. The implications for corporate governance and debt management under alternative fund management strategies are evaluated. The use of futures to construct synthetic investments could alleviate corporate governance and debt management problems.     

完善我国社会保障基金投资运营机制对策研究

社会保障基金是社会保障制度实施的核心条件和物质基础,社会保障基金投资运营机制的完善关系到社会保障基金的安全和有效运行。完善我国社会保障基金投资运营机制必须以福利经济学与投资组合理论为科学依据,关注社会保障机制与社会保障制度的协调发展。尤其在我国经济转型期,合理解决社会保障基金投资运营机制的关键在于社会保障基金应实行资本化经营,资金投向应逐渐向低风险、长收益的项目上实现多元化战略投资转移。     

A Critique of ‘Neoliberal Autonomy’: The Rhetoric of Ownership Society

The rhetoric of the Ownership Society defined by the Cato Institute has been integral to framing the motivation behind the Social Security reform introduced by George W. Bush. This motivational frame involves a fierce advocacy of what we will call ‘neoliberal autonomy’ in a Hayekian and Friedmanite sense. For Hayek and Friedman, the social adequacy component of Social Security is problematized in the name of self-reliance and individual choice, which rejects any authoritative standards as morally indefensible. Nevertheless, the rhetoric of the Ownership Society, though it glorifies the neoliberal notion of autonomy, does not explicitly question the moral basis of Social Security. Rather, by defining the terms of debate, it frames the meaning of Social Security along neoliberal lines in an attempt to make a supposedly detached economic case for private retirement accounts. In this ‘pro-privatization’ framework, the social adequacy component of the Social Security system fades away as individual equity, or actuarial fairness, comes to the fore as the chief theme. We suggest a ‘pro-social’ rhetoric that recognizes the pursuit of social standards as providing the element of autonomy.

On the Pro-Social Security Rhetoric

We propose to reframe Social Security to offer a coherent anti-privatization rhetoric that has not been fully provided in the contemporary literature. The dissatisfaction that motivated this study centers on the observation that the prevalent anti-privatization rhetoric exposes the drawbacks of Private Retirement Accounts (PRAs), but this rhetoric itself doesn't satisfactorily explain why the current Social Security system is more desirable. In reframing Social Security, we will follow a two-stage strategy. First, we will articulate the desirability of Social Security grounded in the function it serves in a way PRAs are not suited for serving: being a social income insurance scheme whose provision inherently favors the least fortunate in a Rawlsian fashion. Second, we will concentrate how Social Security provides this non-market choice by drawing on the unique resources not entirely available to the market.     

DISENTANGLING THE ANNUITY FROM THE REDISTRIBUTIVE ASPECTS OF SOCIAL SECURITY IN THE UNITED STATES*

In the United States, the life-cycle relationship between initial Social Security contributions and subsequent benefits causes the effect of Social Security on income distribution to be overestimated in a single-period analytical framework. By separating the annuity from the redistributive aspects of Social Security we provide a life-cycle framework for measuring its net effect on redistribution. To this point in its history, we find all income classes have received positive net life-cycle income transfers and, in an absolute sense, upper-income groups have done at least as well as lower-income groups. This suggests a reason for the near-universal support of Social Security by past generations, as well as the controversy which now surrounds it. As it becomes apparent to younger cohorts of taxpayers that many of them will be net losers, it is inevitable that Social Security will be subject to the same controversy as other welfare programs which attempt to redistribute income.     

Social Security and the increasing longevity gap

Growth in overall life expectancy is straining the Social Security budget, and the gap in life expectancy between the rich and poor is widening. Motivated by these facts, this paper does four things. First, we develop a simple way to summarize the degree of progressivity in a Social Security system. Second, we show that growth in the life expectancy gap over the last few decades unwinds three-quarters of the progressivity of the Social Security system. Third, we develop simple reforms to Social Security that maintain the progressivity of the system and restore fiscal solvency. Fourth, we estimate the welfare effects of these potential reforms.     

Support for baby-boom retirees--not to worry

Flaws in the discussion of the baby-boom retiree problem make the Social Security problem seem worse than it really is. Problems include the overwhelming emphasis upon fiscal and related financial aspects at the expense of consideration of the output of goods and services, and the almost total neglect of projected real income and productivity rises. Rather, baby-boom retirees can be coped with on the basis of hypothetically reasonable projected magnitudes. It is currently being argued that the future US economy cannot provide Social Security support for the upcoming baby-boom retirees. However, people who support such an argument fail to consider the main determinant of capacity to support. That determinant is the historically established rise in productivity as expressed in per capita output or output per hour of the employed population. Maintaining Social Security pension support through 2030 involves little to no strain upon society, while abolishing such support would cause considerable strain. The authors describe who Social Security supports now and in the future, and explain the capacity of US society to fund Social Security in the decades ahead.     

The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour

This paper estimates a life cycle model of labour supply, retirement, and savings behaviour in which future health status and wages are uncertain. Individuals face a fixed cost of work and cannot borrow against future labour, pension, or Social Security income. The method of simulated moments is used to match the life cycle profiles of labour force participation, hours worked, and assets that are estimated from the data to those that are generated by the model. The model establishes that the tax structure of the Social Security system and pensions are key determinants of the high observed job exit rates at ages 62 and 65. Removing the tax wedge embedded in the Social Security earnings test for individuals aged 65 and older would delay job exit by almost one year. By contrast, Social Security benefit levels, health, and borrowing constraints are less important determinants of job exit at older ages. For example, reducing Social Security benefits by 20% would cause workers to delay exit from the labour force by only three months.     

SOCIAL SECURITY: OVERVIEW AND OPTIONS

The intense controversy about the future of Social Security is found to be basically political. Adjustments that are relatively minor from an economic point of view suffice to maintain the viability of Social Security and of the economy as a whole. The defined-benefit, pay-as-you-go character of Social Security inevitably produces politically troubling crises as the system matures. Five options for change are considered, with special attention given to a defined-cost system which would gradually adjust benefits and avoid both cyclical and long-term crises     

Labor supply responses to marginal Social Security benefits: Evidence from discontinuities

A key question for Social Security reform is whether workers respond to the link on the margin between the Social Security taxes they pay and the Social Security benefits they will receive. We estimate the effects of the marginal Social Security benefits that accrue with additional earnings on three measures of labor supply: retirement age, hours, and labor earnings. We develop a new approach to identifying these incentive effects by exploiting five provisions in the Social Security benefit rules that generate discontinuities in marginal benefits or non-linearities in marginal benefits that converge to discontinuities as uncertainty about the future is resolved. We find that individuals approaching retirement (age 52 and older) respond to the Social Security tax-benefit link on the extensive margin of their labor supply decisions: we estimate that a 10% increase in the net-of-tax share reduces the two-year retirement hazard by a statistically significant 2.0 percentage points from a base rate of 15%. The evidence with regard to labor supply responses on the intensive margin is more mixed: we estimate that the elasticity of hours with respect to the net-of-tax share is 0.42 and statistically significant, but we do not find a statistically significant earnings elasticity. Though we lack statistical power to estimate results within subsamples precisely, the retirement response is driven mostly by the female subsample, while the hours response comes from the male subsample.     

Social Security Income and Health Care Spending: Evidence from the Social Security Notch

In this paper, I exploit Social Security legislation changes to identify the causal effect of Social Security income on out‐of‐pocket medical expenditures of the elderly. Using the 1986–1994 Consumer Expenditure Survey and an instrumental variables strategy, the empirical results show that health care expenditures are responsive to changes in Social Security income for elderly individuals with less than a high‐school education. The estimated income elasticities are between 1.41 and 3.47, depending on the outcome measures, and are statistically significant at conventional levels. The findings are in contrast to existing studies that find a small income elasticity at the individual/household level.     

SOCIAL SECURITY BENEFITS AS A RETIREMENT RESOURCE FOR U.S. NEAR-RETIREES

This paper analyzes Social Security benefits as a retirement resource (wealth and income) for U.S. near-retirees. We look at how the average values of several measures of benefits such as Social Security wealth and earnings replacement rates have changed from earlier cohorts to today's near-retirement cohort, examine differences among demographic and socioeconomic groups within cohorts, and discuss reasons for these changes and differences. We use improved data (actual earnings history data) to produce more accurate measures of benefits. The paper also uses some new benefit measures. Three key findings are: (1) average real Social Security wealth increases markedly as we move to later cohorts primarily because of increases in average real lifetime earnings; (2) replacement rates fall as we move from the cohorts of persons reaching 61 in 1993–97 to later cohorts primarily because of the phase-in of increases in the age of eligibility for full benefits and the increasing labor market activity of women; and (3) median Social Security wealth is much higher for women than for men because women live longer.     

The effect of changes in Social Security on bequests

The net effect on intergenerational transfers of an increase in Social Security benefits will depend on how much of the increase is consumed and how much bequeathed. I show analytically that the marginal propensity to consume an increase in Social Security benefits is indeterminate: it could range from zero to 1.0 or even larger. At one extreme bequests would fully offset the increase in benefits; at the other bequests would fall. According to simulations based on an estimated model of life-cycle behavior, consumption increases by slightly more than the increase in Social Security benefits, causing bequests to fall. That is, bequests do no offset at all an increase in transfers from the younger generation to the older.     

Labor supply effects of the recent social security benefit cuts: Empirical estimates using cohort discontinuities

In response to a “crisis” in Social Security financing two decades ago Congress implemented an increase in the Normal Retirement Age (NRA) of 2 months per year for cohorts born in 1938 and after. These cohorts began reaching retirement age in 2000. This paper studies the effects of these benefit cuts on recent retirement behavior. The evidence suggests that the mean retirement age of the affected cohorts has increased by about half as much as the increase in the NRA. If older workers continue to increase their labor supply in the same way, there might be important implications for the estimates of Social Security trust fund exhaustion that have played such a major role in recent discussions of Social Security reform.     

Explaining the wealth holdings of different cohorts: Productivity growth and Social Security

In this paper, we explore the reasons why different generations accumulate different amounts of wealth. We use basic economic theory to propose two indicators of the economic conditions under which households accumulate wealth. The first one represents productivity differences across cohorts: The aggregate level of gross national product per capita around the time the head of the household entered the labor market. The second measure summarizes the changes in Social Security during the head of household's working life. Using panel data from the Dutch Socio-Economic Panel, we show that productivity growth can explain all the cohort effects present in income data, while productivity growth and the generosity of Social Security can explain all the cohort effects present in household net worth. We also find a limited offset of Social Security on wealth holdings.     

Optimal retirement age,leisure and consumption

In this paper, we study the determination of optimal retirement age, optimal leisure time, and optimal consumption, and we also analyze their relationships using an optimal control theory. We establish a life cycle model and analyze the factors of consumption, leisure, saving, mortality and retirement behaviors simultaneously with an orthogonal-array experimental design. Our results show that the initial salary level and the growth rate of salary are the most important determining factors of the optimal retirement age. The initial consumption level and the interest rate are also important factors affecting optimal retirement age. The mortality improvement has a minor effect on the optimal retirement age. The effects of the Social Security on the optimal retirement age depend on the Social Security tax and the level of Social Security benefit.