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Modeling Lifetime Earnings Paths: Hypothetical versus Actual Workers

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  • Andrew Au

    (University of Pennsylvania)

  • Olivia S. Mitchell

    (University of Pennsylvania)

  • John W. R. Phillips

    (Social Security Administration)

Abstract

To assess the distributional effects of social security reform proposals, it is essential to have good information on real-world workers’ lifetime earnings trajectories. Until recently, however, policymakers have relied on hypothetical earnings profiles for policy analysis. We use actual lifetime earnings data from the Health and Retirement Study (HRS) to compare actual workers’ covered earnings profiles to these hypothetical profiles. We show that the hypothetical profiles do not track earnings patterns of current retirees; thus lifetime pay levels are much higher than for most HRS workers. Therefore, using hypothetical profiles could misrepresent benefits paid and taxes collected under such reforms.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp074.pdf
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Bibliographic Info

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp074.

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Length: 34 pages
Date of creation: Mar 2004
Date of revision:
Handle: RePEc:mrr:papers:wp074

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References

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  1. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2004. "Are Americans Saving "Optimally" for Retirement?," NBER Working Papers 10260, National Bureau of Economic Research, Inc.
  2. Alan L. Gustman & Thomas L. Steinmeier, 2000. "How Effective is Redistribution Under the Social Security Benefit Formula?," NBER Working Papers 7597, National Bureau of Economic Research, Inc.
  3. Josh O’Harra & John Sabelhaus & Michael Simpson, 2004. "Overview of the Congressional Budget Office Long-Term (CBOLT) Policy Simulation Model: Technical Paper 2004-01," Working Papers 15188, Congressional Budget Office.
  4. Cunningham, Christopher R. & Engelhardt, Gary V., 2002. "Federal Tax Policy, Employer Matching, and 401(k) Saving: Evidence from HRS W-2 Records," National Tax Journal, National Tax Association, vol. 55(3), pages 617-45, September.
  5. John F. Cogan & Olivia S. Mitchell, 2003. "Perspectives from the President's Commission on Social Security Reform," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 149-172, Spring.
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Cited by:
  1. Thomas L. Hungerford, 2006. "The role of earnings and financial risk in distributional analyses of Social Security reform measures," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 25(2), pages 417-438.
  2. Wade D. Pfau, 2009. "How Representative are Representative Workers? An Assessment of the Hypothetical Workers Commonly Used in Social Security Studies," Journal of Income Distribution, Journal of Income Distribution, vol. 18(2), pages 92-117, June.

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