Transcript Does Social Security Continue to Favor Couples? Nadia S. Karamcheva (Urban Institute), April Yanyuan Wu (Mathematica Policy Research), and Alicia H.

Does Social Security Continue to Favor
Couples?
Nadia S. Karamcheva (Urban Institute), April Yanyuan Wu (Mathematica Policy Research),
and Alicia H. Munnell (Center for Retirement Research at Boston College)
16th Annual RRC Meeting
Washington, DC
August 8, 2014
Changing role of women: labor supply
Labor Force Participation, by Marital Status
80%
70%
60%
50%
All women 25-34
40%
Married women 25-34
30%
1931-1935
1942-1947
1954-1959
1966-1975
Birth year
Source: Authors calculations using U.S. Social Security Administration Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
1
Changing role of women: earnings
Ratio of Median Wife’s to Husband’s Lifetime Earnings
70%
- - - - - Projected
60%
50%
40%
30%
20%
Birth year
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
2
Changing role of women: marital patterns
Percent of Women Married, by Age
90%
25-34
80%
55-64
70%
60%
50%
40%
- - - - - Projected
30%
1931-1935
1942-1947
1954-1959
1966-1975
Birth year
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
3
Changes in women’s benefit eligibility at first
claiming
100
25
16
13
80
28
60
28
8
8
8
7
24
22
21
18
31
Auxiliary
only
40
20
44
55
59
68
71
72
75
Dually
entitled
Retired
worker
0
DE1
(1931–1935)
DE2
(1936–1941)
War baby
(1942–1947)
EBB
(1948–1953)
MBB
(1954–1959)
LBB
(1960–1965)
Gen X
(1966–1975)
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
4
Despite gains in work years and earnings, the majority of current and
future female retirees would still receive a higher benefit as a survivor
Percent of Married Women Who Would Receive Higher Benefit as a Survivor
100
84
80
80
80
75
73
72
68
60
40
20
0
DE1
(1931–1935)
DE2
War baby
EBB
MBB
LBB
Gen X
(1936–1941) (1942–1947) (1948–1953) (1954–1959) (1960–1965) (1966–1975)
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
5
Research question
• Does Social Security continue to favor couples if viewed
from a lifetime as opposed to point-in-time measure? That
is, do lifetime benefit/tax ratios yield a different answer
than initial replacement rates?
6
Research approach
The analysis will:
1) Examine trends in the ‘returns’ from OASI :
 Three measures: benefit/tax ratio, net tax rate, share
receiving positive transfers from OASI
 Cohorts: Depression to Generation X
 By gender, marital status and income distribution
2) Decompose differences into contributing factors
7
Preview of results
•
Decline in median individual benefit/tax ratios
27 percent between the 1930s cohort and GenXers
• Decline in median household benefit/tax ratios
21 percent between the 1930s cohort and GenXers
• Changes vary by gender, martial status and income distribution
Factors explaining the decline in the returns from the system
•
Increased labor supply and earnings: (from 46% to 75 %)
•
Wife’s increased labor force activity explains >1/2 of the decline
for couples
8
Data
•
Modeling Income in the Near Term (MINT)
o
Depression Era 1(DE1, 1931-1935)
o
Depression Era 2(DE2, 1936-1941)
o
War Baby (WB, 1942-1947)
o
Early Baby Boomers (EBB, 1948-1953)
o
Middle Baby Boomers (MBB, 1954-1959)
o
Late Baby Boomers (LBB, 1960-1965)
o
Generation X (GX, 1966-1975)
9
Three Measures of Returns
PV of OASI benefits
• Lifetime benefit/tax ratio =
, taxes include
PV of OASI taxes
employee+employer share
PV tax – PV benefit
• Net tax rate =
PV total earnings
• Net transfer = 1 if Net tax rate<0, 0 otherwise
10
Changes in benefit/tax ratios – by Gender
Median Benefit/tax ratios, Individual level
3.0
2.57
2.5
2.0
1.5
1.41
1.34
1.11 1.00
1.0
0.92
0.5
0.0
All
DE1
(1931–1935)
DE2
(1936–1941)
Men
War Baby
(1942–1947)
EBB
(1948–1953)
Women
MBB
(1954–1959)
LBB
(1960–1965)
Gen X
(1966–1975)
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
11
Changes in benefit/tax ratios –by Marrital Status
Median Benefit/tax ratios, Household level
2.5
2.0
1.68
1.5 1.36
1.34
1.26
1.07
1.03
1.07
1.23 1.31
1.07
1.0
0.5
0.0
All
Never married
Currently
married
Widowed
Divorced
DE1
(1931–1935)
DE2
(1936–1941)
War Baby
(1942–1947)
EBB
(1948–1953)
MBB
(1954–1959)
LBB
(1960–1965)
Gen X
(1966–1975)
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
12
Changes in median net tax rate - Household Level
Median net tax rate, Household level
DE1
(1931–1935)
DE2
War Baby
EBB
MBB
LBB
Gen X
(1936–1941) (1942–1947) (1948–1953) (1954–1959) (1960–1965) (1966–1975)
0%
-0.3%
-0.6%
-0.7%
-1%
-2%
-1.9%
-2.1%
-2.3%
-3%
-2.3%
-2.4%
Never married
Married/Two earners
-4%
-5%
-3.8%
-4.8%
Divorced
Married/Single earner
Widowed
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
13
Changes in share with positive net transfers Household Level
Share with positive net transfers, Household level
100%
75%
86%
83%
78%
71%
67%
50%
25%
68%
67%
59%
57%
54%
Married/Single earner
Widowed
Married/Two earners
Divorced
Never married
0%
DE1
DE2
War Baby
EBB
MBB
LBB
Gen X
(1931–1935) (1936–1941) (1942–1947) (1948–1953) (1954–1959) (1960–1965) (1966–1975)
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
14
Decline is largest for couples with husbands’
earnings in top tercile
DE 1 vs Gen X cohort, Household level
Share with positive
Ben/tax ratio
Median net tax rate
transfers
DE1
DE1
Gen X
DE1
Gen X
(1931–
Gen X
(1931–
(1966–
(1931–
(1966–
1935) (1966–1975)
1935)
1975)
1935)
1975)
Single- earner houshold
Low
Husband's earnings Median
High
1.94
1.42
1.29
1.48
1.15
0.93
-6.5%
-3.0%
-1.7%
-5.7%
-1.6%
0.6%
87%
80%
77%
81%
66%
41%
Low
Husband's earnings Median
High
1.49
1.22
1.15
1.26
1.07
0.92
-4.2%
-1.7%
-1.0%
-3.0%
-0.8%
0.6%
86%
76%
70%
81%
62%
36%
Two-earner household
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
15
Explaining differences over time
Factors contributing to the changes over time:
• Labor force participation
• Marriage pattern
• And…changes in FRA and claiming behaviors
16
Explaining differences between DE 1(1931-1935) and Gen X (19661975) cohorts:
Percent of the overall change in median benefit/tax ratio explained by differences
in the characteristics between earliest and latest cohort
100%
75%
50%
74.4%
25%
79.9%
68.7%
% Unexplained
40.8%
18.8%
0%
Men
Women
Individual level
Never
Married
Married
0.0%
Widowed
% Explained
Divorced
Household level
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
Note: We used DiNardo, Fortin and Lemieux (1996) semi-parametric re-weighting method to explain changes in Medians
17
Explaining differences between DE 1(1931-1935) and Gen X (19661975) cohorts (cont.)
Among women, changes in labor force activity account for more than 2/3 of the
difference in net tax rate and share with positive transfers.
Decomposition: Individuals
Share Receiving Net
Transfers
Mean Net Tax Rate
All Individuals Only Women All Individuals Only Women
DE1 (1931–1935)
0.706
0.893
-2.177
-4.128
Gen X (1966–1975)
0.589
0.753
-0.403
-0.754
Difference
0.118
0.140
-1.774
-3.374
Percentage distrib ution
Difference Due to:
Demographics
Marrital Status
Claiming Behavior
Labor Force Activity
Unexplained factors
-14.8% ***
5.7% ***
8.0% ***
45.7% ***
55.5% ***
-11.1% ***
3.5% ***
3.9% **
72.0% ***
31.8% ***
12.9%
1.0%
-23.9% ***
64.9% ***
45.1% ***
11.9%
2.2% *
-20.3% ***
74.5% ***
31.7% ***
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
Note: We used Oaxaca-Blinder decomposition to explain changes in Means, and its application to binary outcomes
developed by Yun (2004).
18
Explaining differences between DE 1(1931-1935) and Gen X (19661975) cohorts (cont.)
Wife's labor force activity accounts for more than ½ of the change among married
couples.
Decomposition: Married Couples
Share with net
transfers
Mean net tax
rate
Mean
benefit/tax ratio
DE1 (1931–1935)
0.774
-0.030
1.375
Gen X (1966–1975)
0.590
-0.015
1.131
Difference
0.184
-0.015
0.244
Percentage distrib ution
Difference Due to:
Husband's demographics
Husband's claiming behavior
Husband's labor force activity
Wife's demographics
Wife's claiming behavior
Wife's labor force activity
Unexplained factors
-3.4%
8.9% ***
2.4%
-18.5% ***
3.0% *
53.2% ***
54.4% ***
-20.3% *
17.8% ***
5.6%
-8.9%
7.4% ***
76.9% ***
21.5% ***
-6.5% **
9.8% ***
2.6%
-8.3% ***
4.3% ***
50.4% ***
47.7% ***
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5
and 6. Washington, DC.
We used Oaxaca-Blinder decomposition to explain changes in Means, and its application to binary outcomes developed by
Yun (2004).
19
Conclusion
•
While the OASI system continues to redistribute lifetime income from singles to
couples and from men to women, the transfers appear to be shrinking over time
•
Women’s increased labor force participation and earnings have contributed
significantly to the decline
•
Changing marital patterns have significant but small impact
•
Sensitivity analysis with alternative discount rates show similar results.
Next Steps
•
•
External validity check using HRS data
Detailed decomposition of the changes in median ben/tax ratio and median net
tax rate using DFL (1996) approach.
20
20