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How effective is redistribution under the social security benefit formula?

  • Gustman, Alan L.
  • Steinmeier, Thomas L.

This paper uses earnings histories obtained from the Social Security Administration and linked to the survey responses for participants in the Health and Retirement Study to investigate redistribution under the current social security benefit formula. We find that as advertised, at the level of the individual respondent, the benefit formula is progressive. When individuals are arrayed by indexed lifetime earnings, own benefits are significantly redistributed from those with high lifetime earnings to those with low lifetime earnings. However, much of this apparent redistribution is from men to women, and when examined at the level of the family, from primary to secondary earners. When families are arrayed according the total lifetime earnings, and spouse and survivor benefits are taken into account, the extent of redistribution from families with high lifetime earnings to families with low lifetime earnings is roughly halved. Much of the remaining redistribution is from families where both spouses spend much of their potential work lives in the labor market, to families where a spouse, often with high earnings potential, chooses to spend a significant number of years outside of the labor force. When families are arrayed by their earnings potential, that is earnings during years when both spouses are engaged in substantial work, there is very little redistribution from families with high to low earnings capacity. Accordingly, at least for families on the verge of retirement today, introducing a simple system of privatized or other individual accounts, i.e., a system that ignored issues of redistribution, would have no major effect on the distribution of social security benefits net of taxes among families with different earnings capacities. Moreover, although privatized or other individual accounts would reduce redistribution from two earner to one earner families, the extent of that redistribution is greatly exaggerated when one compares benefits among individuals ar

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 82 (2001)
Issue (Month): 1 (October)
Pages: 1-28

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Handle: RePEc:eee:pubeco:v:82:y:2001:i:1:p:1-28
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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  1. Julia Lynn Coronado & Don Fullerton & Thomas Glass, 1999. "Distributional Impacts of Proposed Changes to the Social Security System," NBER Working Papers 6989, National Bureau of Economic Research, Inc.
  2. Martin Feldstein & Jeffrey Liebman, 2000. "The Distributional Effects of an Investment-Based Social Security System," NBER Working Papers 7492, National Bureau of Economic Research, Inc.
  3. Jeffrey B Liebman, 2002. "Redistribution in the Current U.S. Social Security System," Working Papers 02-09, Center for Economic Studies, U.S. Census Bureau.
  4. Alan L. Gustman & Olivia S. Mitchell & Andrew A. Samwick & Thomas L. Steinmeier, 1997. "Pension and Social Security Wealth in the Health and Retirement Study," NBER Working Papers 5912, National Bureau of Economic Research, Inc.
  5. Harriet Duleep, 1989. "Measuring socioeconomic mortality differentials over time," Demography, Springer, vol. 26(2), pages 345-351, May.
  6. Martin Feldstein & Jeffrey B. Liebman, 2001. "Social Security," NBER Working Papers 8451, National Bureau of Economic Research, Inc.
    • Feldstein, Martin & Liebman, Jeffrey B., 2002. "Social security," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 32, pages 2245-2324 Elsevier.
  7. Smith, James P, 1979. "The Distribution of Family Earnings," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 163-92, October.
  8. Panis, C.W.A. & Lillard, L.A., 1996. "Socioeconomic Differentials in the Returns to Social Security," Papers 96-05, RAND - Labor and Population Program.
  9. 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.
  10. Alan L. Gustman & Thomas L. Steinmeier, 1998. "Privatizing Social Security: First-Round Effects of a Generic, Voluntary, Privatized U.S. Social Security System," NBER Chapters, in: Privatizing Social Security, pages 313-361 National Bureau of Economic Research, Inc.
  11. Patricia M. Anderson & Alan L. Gustman & Thomas L. Steinmeier, 1997. "Trends in Male Labor Force Participation And Retirement: Some Evidence On The Role Of Pensions And Social Security In The 1970's And 1980's," NBER Working Papers 6208, National Bureau of Economic Research, Inc.
  12. Julia Lynn Coronado & Don Fullerton & Thomas Glass, 2000. "Long Run Effects of Social Security Reform Proposals on Lifetime Progressivity," NBER Working Papers 7568, National Bureau of Economic Research, Inc.
  13. Alan L. Gustman & Thomas L. Steinmeier, 1999. "What People Don't Know About Their Pensions and Social Security: An Analysis Using Linked Data from the Health and Retirement Study," NBER Working Papers 7368, National Bureau of Economic Research, Inc.
  14. Michael J. Boskin & Laurence J. Kotlikoff & Douglas J. Puffert & John B. Shoven, 1987. "Social Security: A Financial Appraisal Across and Within Generations," NBER Working Papers 1891, National Bureau of Economic Research, Inc.
  15. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December.
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