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Differential Mortality by Income and Social Security Progressivity

In: Explorations in the Economics of Aging

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  • Gopi Shah Goda
  • John B. Shoven
  • Sita Nataraj Slavov

Abstract

There is a widespread belief that people with low lifetime labor income have higher age specific mortality and lower remaining life expectancies at age 60 or 65 than those with middle or high lifetime earnings. In this paper, we assess the implications of differential mortality by lifetime income for Social Security progressivity. Social Security has a highly progressive formula to determine monthly benefits in that those with low lifetime earnings get a much higher replacement rate than those with high lifetime earnings. However, recent studies on the mortality gap by lifetime income suggest that at least some of this progressivity is counterbalanced by the longer average lifetimes experienced by higher lifetime income recipients of Social Security. To reassess the progressivity of Social Security, we calculate internal rates of return and net present values for the program under assumptions of differential mortality and compare these measures of progressivity to the same measures calculated assuming all individuals experience average population mortality rates. Under the assumption of constant mortality across lifetime income subgroups, the Social Security system is progressive regardless of the measure shown. However, a good deal of the progressivity is undone or even reversed when differential mortality is taken into account.

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This chapter was published in:

  • David A. Wise, 2011. "Explorations in the Economics of Aging," NBER Books, National Bureau of Economic Research, Inc, number wise09-2.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 11940.

    Handle: RePEc:nbr:nberch:11940

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    1. Jeffrey B. Liebman, 2001. "Redistribution in the Current U.S. Social Security System," NBER Working Papers 8625, National Bureau of Economic Research, Inc.
    2. Coronado Julia Lynn & Fullerton Don & Glass Thomas, 2011. "The Progressivity of Social Security," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-45, November.
    3. James E Duggan & Robert Gillingham & John S Greenlees, 2008. "Mortality and Lifetime Income: Evidence from U.S. Social Security Records," IMF Staff Papers, Palgrave Macmillan, vol. 55(4), pages 566-594, December.
    4. Julian P. Cristia, 2007. "The Empirical Relationship Between Lifetime Earnings and Mortality: Working Paper 2007-11," Working Papers 19096, Congressional Budget Office.
    5. Garrett, Daniel M, 1995. "The Effects of Differential Mortality Rates on the Progressivity of Social Security," Economic Inquiry, Western Economic Association International, vol. 33(3), pages 457-75, July.
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    Cited by:
    1. Isabelle Joumard & Mauro Pisu & Debbie Bloch, 2012. "Tackling income inequality: The role of taxes and transfers," OECD Journal: Economic Studies, OECD Publishing, vol. 2012(1), pages 37-70.
    2. Alan L. Gustman & Thomas L. Steinmeier & Nahid Tabatabai, 2011. "The Effects of Changes in Women's Labor Market Attachment on Redistribution Under the Social Security Benefit Formula," NBER Working Papers 17439, National Bureau of Economic Research, Inc.

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