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Modeling Lifetime Earnings Paths: Hypothetical versus Actual Workers

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Author Info
Andrew Au (University of Pennsylvania)
Olivia S. Mitchell (University of Pennsylvania)
John W. R. Phillips (Social Security Administration)

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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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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
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Handle: RePEc:mrr:papers:wp074

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gustman, Alan L. & Steinmeier, Thomas L., 2001. "How effective is redistribution under the social security benefit formula?," Journal of Public Economics, Elsevier, vol. 82(1), pages 1-28, October. [Downloadable!] (restricted)
  2. Barry Bosworth & Gary Burtless & Eugene Steuerle, 2002. "Lifetime Earnings Patterns, The Distribution Of Future Social Security Benefits, And The Impact Of Pension Reform," Working Papers, Center for Retirement Research at Boston College 1999-06, Center for Retirement Research. [Downloadable!]
  3. 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. [Downloadable!] (restricted)
  4. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2004. "Are Americans Saving "Optimally" for Retirement?," NBER Working Papers 10260, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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