The Effects of Changes in Women’s Labor Market Attachment on Redistribution under the Social Security Benefit Formula
Authors
Abstract
Studies conducted in the early 1990s analyzed whether the progressive Social Security benefit formula succeeds in redistributing benefits from high to low earners. These studies suggested that while the benefit formula fostered significant redistribution from individuals with high earnings to those with low earnings, there was much less redistribution of benefits from households with high earnings to households with low earnings. With wives earning much less than their husbands, effectively much of the redistribution was from high earning husbands to their lower earning wives. In addition, spouse and survivor benefits accrued disproportionately to high income households. Both factors mitigated redistribution at the household level. This paper compares outcomes for the earlier cohort with those of a cohort born twelve years later. We use data from the Health and Retirement Study, hold values in 2004 dollars, and study a population consisting of members of households with at least one person age 51 to 56. There is an obvious decline in the rate of return to Social Security taxes against which other changes are taking place. Comparing the 2004 and 1992 cohorts, over the twelve intervening years, the annual value of covered earnings for men increased from $36,000 to $43,000. The covered earnings of women increased from $13,000 to $22,000. With the greater growth in women’s earnings, the Social Security system fostered somewhat more redistribution from high to low earning households.
We use three different measures of redistribution. First, comparing the 1992 and 2004 cohorts, benefits received by members of the highest AIME deciles are reduced by a greater proportional amount in 2004 than they were in 1992. Second, the fraction of total Social Security benefits redistributed from high to low earning individuals increased from 9.5 percent to 11.7 percent. At the household level, the fraction of benefits redistributed from high to low earning households increased from 4.5 percent to 7.4 percent. Nevertheless, a 4.3 percentage point gap remained between the share of benefits redistributed at the individual and household levels. As a third measure, we compute the rate of return to Social Security taxes for members of each AIME decile. These rates of return have declined by roughly equal amounts for members of different AIME deciles. In sum, the 2004 Social Security system, by some measures, was somewhat more effective in redistributing benefits to low AIME households, but was still substantially less effective in redistributing benefits among households arrayed according to lifetime covered earnings than it was in redistributing benefits among individuals according to own earnings.
Full Text
Download PDFProject
Publication Type
Conference Paper