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The Genesis and Evolution of Social Security

In: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century

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  • Jeffrey A. Miron
  • David N. Weil

Abstract

We examine the creation of Social Security during the Great Depression, and how it has evolved since, asking in particular to what extent the program as it exists today is the same as that created in 1935 and 1939. We find that there has been surprising continuity. Much of the program's growth was built in from its inception. The replacement rate and the ratio of benefits to payrolls are today roughly at the levels designed into the original legislation. Payroll tax rates today are higher than had been planned, in part because of the failure to accumulate a trust fund during the program's early years. The change in the ratio of contributors to beneficiaries which has taken place over the last 60 years was fully anticipated. The most dramatic changes in Social Security's functioning have come not from legislation, but from changes in the environment in which the program operates. Before the Depression, retirement was unlikely and often involuntary. Higher life expectancy, lower labor force participation, and better health have undermined Social Security's original purpose, which was as a form of insurance. We also find that the Depression itself had surprisingly little influence on the design chosen for Social Security.

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This chapter was published in:

  • Michael D. Bordo & Claudia Goldin & Eugene N. White, 1998. "The Defining Moment: The Great Depression and the American Economy in the Twentieth Century," NBER Books, National Bureau of Economic Research, Inc, number bord98-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6897.

    Handle: RePEc:nbr:nberch:6897

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    1. Weaver, Carolyn L., 1983. "On the lack of a political market for compulsory old-age insurance prior to the great depression: Insights from economic theories of government," Explorations in Economic History, Elsevier, vol. 20(3), pages 294-328, July.
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    Cited by:
    1. John Geanakoplos & Olivia S. Mitchell & Stephen P. Zeldes, . "Social Security Money's Worth," Pension Research Council Working Papers 98-9, Wharton School Pension Research Council, University of Pennsylvania.
    2. David M. Cutler & Richard Johnson, 2001. "The birth and growth of the social-insurance state : explaining old-age and medical insurance across countries," Research Working Paper RWP 01-13, Federal Reserve Bank of Kansas City.
    3. VANNESTE, Jacques & ZHANG, Ying, 2012. "The impact of government expenditure on prepayment for health services: Evidence from cointegration analysis in heterogeneous panel data," Working Papers 2012029, University of Antwerp, Faculty of Applied Economics.
    4. Soares, Jorge, 2005. "Public education reform: Community or national funding of education?," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 669-697, April.
    5. Casey B. Mulligan & Xavier Sala-i-Martin, 1999. "Social security in theory and practice (I): Facts and political theories," Economics Working Papers 384, Department of Economics and Business, Universitat Pompeu Fabra.
    6. Michael Dotsey, 1997. "Investing in equities: can it help social security?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 49-70.
    7. Elizabeth Caucutt & Thomas Cooley & Nezih Guner, 2013. "The farm, the city, and the emergence of social security," Journal of Economic Growth, Springer, vol. 18(1), pages 1-32, March.
    8. Craig Broderick, 2001. "Capital allocation for operational risk: securities firms," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
    9. Casey B. Mulligan, 2000. "Induced Retirement, Social Security, and the Pyramid Mirage," NBER Working Papers 7679, National Bureau of Economic Research, Inc.
    10. David N. Weil, 2001. "Demographic shocks: the view from history: discussion," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 46.

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