Wednesday, August 31, 2011

Robert VerBruggen on Burkhauser & Daly’s The Declining Work and Welfare of People with Disabilities

Over at National Review Online, editor Robert VerBruggen has a nice article based on Rich Burkhauser and Mary Daly's new book, "The Declining Work and Welfare of People with Disabilities." It's a good review for the general reader of what's happening in the Social Security Disability Insurance program and what some prominent experts are proposing to fix it.

The problem, Burkhauser and Daly report, is that people with disabilities have chosen government payments over work, not because of short-term economic trends, but because public policy encourages them to. And while recent reports have tended to focus on the last ten years, the problem has been growing for much, much longer.

In 1981, a government survey found that 7.3 percent of American had disabilities that affected their ability to work; of these, 35 percent held jobs anyway, and 32.6 percent collected payments from the government. In 2010, a similar proportion reported work-relevant disabilities — 7.8 percent — but 51.4 percent said they received government payments, and only 22.6 percent said they worked.

Changes in government policy between the two surveys explain the difference. By 1983, various policy changes had eliminated the program's regular reevaluations of its beneficiaries, making it much harder to remove people from the rolls. In 1986, the standards for mental illness loosened. And throughout SSDI's history, Social Security's bureaucrats have become progressively more lenient when they make judgment calls about conditions that don't necessarily prevent people from working: In 1967, about 20 percent of those on disability had mental illnesses or musculoskeletal problems; by 2009, more than half did.

Burkhauser and Daly will present their book at an AEI event on September 22nd. I'll be moderating and I hope all interested folks will show up.

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Tuesday, August 30, 2011

Bartlett on the payroll tax cut: a tax cut conservatives don’t like

Writing for the New York Times, Bruce Bartlett discusses the debate over cutting the payroll tax as a means to stimulate the economy:

Many leading Republicans, it seems, are extremely cool to the idea of extending the temporary cut in the Social Security tax that took effect on Jan. 1 and expires on Dec. 31. It has lowered employees' share of the payroll tax to 4.2 percent, from 6.2 percent.

In theory, the payroll tax cut has positive economic effects on both the demand side and the supply side. By increasing workers' cash flow, it should encourage additional spending in the economy – something that the economy desperately needs.

It also reduces the tax wedge between what it costs employers to hire a worker and the worker's after-tax reward. Thus, a cut in the payroll tax should increase economic activity and reduce unemployment.

However, there is no evidence that the lower payroll tax has done much of anything to stimulate either spending or hiring. There are a number of reasons for this.

First, the tax cut only helps those with jobs. While many have low wages and undoubtedly are spending all their additional cash flow, those with the greatest need and most likely to spend any additional income are the unemployed.

Second, the payroll tax cut helps many workers who have no need for it and will only pocket the tax savings.

Third, economic theory and the experience with tax rebates in 2001 and 2008 tell us that people are strongly inclined to save temporary increases in income. People only increase their spending when they perceive an increase in their permanent income.

Fourth, even if one assumes that the cost of employment has declined and employers can somehow capture some of the payroll tax cut, there's little sign that labor costs are the principal factor holding back hiring.

I'm one of the conservatives quoted in opposition to the payroll tax cut:

Andrew Biggs of the American Enterprise Institute has said that a temporary payroll tax cut "is a dubious idea that would give low-wage workers a modest temporary boost, but at the expense of the Social Security program they will depend upon in retirement."

And I think that quote was from back when John Kerry was proposing to cut the payroll tax. At least I'm consistent! I just don't see that much additional spending being generated by a payroll tax cut, although I'll be frank and admit that I don't have a much better plan. Once you're in the ditch it's hard to get out – which means that we should pay a lot of attention to learning the correct lessons of how we got where we are.


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Monday, August 29, 2011

Job opening at NASI

National Academy of Social Insurance
Income Security Research Associate

The National Academy of Social Insurance (NASI) seeks a mid-level Research Associate for policy analysis, research and convening of NASI experts to address current issues in income security, including unemployment insurance, Social Security, disability insurance and related systems. The Academy is a nonprofit, nonpartisan organization devoted to research and education on Social Security, health care financing, and related public and private programs. Its members are some 900 of the nation's leading experts on social insurance programs and policy.

JOB DESCRIPTION: The Research Associate will be part of an interdisciplinary team that conducts the Academy's research, policy analysis, educational activities, and an annual conference and other meetings of experts on income security issues. He or she will be responsible for collecting, analyzing and synthesizing research and policy analyses related to income security programs. He or she will present this work in a variety of formats: reports, briefs, background memos, website documents, newsletter articles, scholarly articles, and oral presentations. He or she will collaborate with NASI staff and expert members to produce policy findings and products.

The Research Associate will be involved in the following activities:
- Implementing new initiatives in unemployment insurance, Social Security, and other social insurance policy which may include study panel projects, convening seminars and workshops and public education activities;
- Implementing policy analysis and communications projects aimed at clarifying issues in the Social Security and related social insurance debates and promoting deeper understanding of social insurance among journalists, policymakers and their staffs, and the American public.

The Research Associate reports to the Academy's Vice President for Income Security Policy. Specific responsibilities will include:
- Researching, drafting articles, and editing articles written by others to create fact sheets and briefs for policymakers and journalists;
- Drafting other types of reports and articles suited to the target audience, which may include members of Academy study panels or other scholars, policymakers and their staffs, and journalists;
- Coordinating work with members of relevant Academy committees and staffing their meetings;
- Planning workshops and conferences related to the projects;
- Commissioning work from outside experts, monitoring progress and arranging for review of results;
- Coordinating reviews of draft research reports and briefs;
- Conducting quantitative and qualitative policy analysis;
- Disseminating results to policy audiences through briefings, seminars and other presentations; and
- Drafting reports to funders and assisting in developing proposals for funding of new projects.

- Graduate degree and/or equivalent experience in policy analysis in income security areas.
- Proven analytic skills and excellent writing and verbal communication skills.
- Knowledge of social insurance programs, such as unemployment insurance, Social Security, and other income security programs.
- Experience with project management.
- Ability to discuss Academy activities with outside experts, policymakers and the public.
- Ability and willingness to perform multiple tasks in a small office environment and work with other members of the Academy's interdisciplinary staff.
- Ability and willingness to meet deadlines and to adapt priorities to respond to new opportunities and demands.

COMPENSATION: Salary range is commensurate with experience. Generous benefits include employer-paid health insurance, three weeks' vacation, sick leave, and retirement plan contributions.

APPLICATION PROCEDURE: Send cover letter, resume, writing sample, and three references to:

Income Security Search
National Academy of Social Insurance
1776 Massachusetts Avenue, NW, Suite 400
Washington, DC 20036

Application deadline: The deadline for applications is Friday, September 9, 2011. Applications will be reviewed and interviews scheduled on a rolling basis. The National Academy of Social Insurance is an equal opportunity employer. Minorities and persons with disabilities are encouraged to apply.

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“New paper: The Effect of Providing Peer Information on Retirement Savings Decisions”

"The Effect of Providing Peer Information on Retirement Savings Decisions" by John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian, Katherine L. Milkman - #17345 (AG LS)

Abstract: We measure how receiving information about coworkers' savings behavior affects recipients' savings choices. Employees of a large company who were not participating in or contributing little to the company's retirement savings plan were sent a simplified enrollment or contribution rate increase form. A randomized subset of forms included information on the fraction of coworkers either participating in or contributing at least 6% of pay to the plan. We find that peer information increased savings of non-unionized recipients but decreased savings of unionized recipients. Our results highlight the possibilities and limitations of peer information interventions.

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Monday, August 22, 2011

New papers from the Social Science Research Network

"A Report on Canadian Pension Law Reform"

Ontario Bar Association 9th Annual Seminar on Pension and Benefits Essential Updates and Key Legal Issues, 2011

SIMON B. ARCHER, York University - Osgoode Hall Law School Email:

The focus of this paper is the Canadian occupational plan system. Although others may be relevant, three questions assist in evaluating that system. Do enough people have an occupational pension plan (the "coverage question"), are occupational pension plans affordable and efficient methods for saving for retirement income (the "affordability question") and do occupational pension plans provide sufficient retirement income (the "adequacy question")?

"Demographic Risk Indicators in Pay-as-You-Go Pension Funds"

Problems and Perspectives in Management, Vol. 8, No. 4, pp 117-126, 2010

ROBERTA MELIS, Università degli Studi di Sassari Email:
ALESSANDRO TRUDDA, Università degli Studi di Sassari Email:

This paper deals with demographic risk in private pay-as-you-go pension systems. In particular, it analyzes the financial sustainability of the fund in a stochastic framework. We present a model to investigate the dynamics of these types of pension funds which operate according to the pay-as-you-go rule, focusing on the behavior of the demographic variable "new entrants" and on its influence on the future evolution of the fund. The global asset return and the new entrants variation rate are modeled by autoregressive processes. The goal is to propose risk indicators that can be employed to monitor the solvency of the fund. A numerical application is carried out using the data provided by the pension funds of Italian Professional Orders. The analysis highlights how the variable "new entrants" influences the final value of the fund and the application shows that the proposed controlling model appears effective at providing advance warning of the financial insolvency of the fund.

"Social Security: The House that Roosevelt Built"

PAMELA PERUN, Aspen Institute - Initiative on Financial Security Email:
PATRICIA DILLEY, University of Florida Levin College of Law, National Academy of Social Insurance (NASI) Email:

Critics of the Social Security program are fond of disparaging it as a "Ponzi" scheme or as a redistributive transfer of income from the young to the old. Others go even further, labeling the Social Security trust fund as a fiction or claiming the program is bankrupt. Some also suggest that the government bonds held in the trust fund are mere IOUs. Still others say that the program's legal basis is ephemeral, subject to the whims of Congress.

These assertions are untrue. This brief sets the record straight on Social Security on the following points:
• Social Security is neither a "Ponzi scheme" nor an income transfer program from the young to the old.
• Social Security is a pension plan in the form of a defined benefit plan.
• Like most other defined benefit plans, contributors earn a right to a benefit paid at retirement based on their earnings.
• The Social Security trust is a valid trust, and the trust fund is invested as required by law.
• By law, contributions are held in a trust.
• Trust assets not needed to pay current benefits and costs are invested to increase revenues to pay for future benefits.
• Federal law requires trust assets to be invested in the safest possible investment: special government bonds backed by the full faith and credit of the United States government.
• The bonds held by the Social Security trust are entitled to the same legal status and repayment rights as other full
faith and credit obligations of the United States.
• Social Security's financial status is strong, and the program is not a major contributor to the long-term federal deficit.
• Social Security's trust holds $2.4 trillion in assets for retirement benefits alone.
• The program is projected to be able to pay 100% of scheduled benefits for the next 25 years. After 2036, non-interest income is sufficient to pay approximately 77% of scheduled benefits for decades, and 74% of scheduled benefits in 2085.

"Internal Governance Mechanisms and Pension Fund Performance" Wharton Financial Institutions Center Working Paper No. 11-46

KRZYSZTOF JACKOWICZ, Kozminski University Email:
OSKAR KOWALEWSKI, Warsaw School of Economics (SGH) - World Economy Research Institute Email:

This study provides new empirical evidence on the impact of board structure, as an internal governance mechanism, on privately defined contribution pension fund performance. Using a hand-collected dataset, we find evidence that the chairman, as a motivated insider, plays an important role in determining fund performance. The results also suggest, although with weaker evidence, that outsiders may positively impact fund performance. One explanation for this result is the weaker motivation of the outsiders to monitor fund performance. Consequently, the results show that both the composition of the board and the motivation of the board members are important in explaining pension fund performance, while other governance factors have no impact on its performance. The results provide relevant insights into the current regulatory debate on the reforms of the pension fund industry, arguing that modifying the board structure and its members' motivations may improve its governance and, hence, its performance. Consequently, the overall policy conclusion of this study is that more focus should be put on the board structure of pension funds, taking into account the different interests of the beneficiaries and fund shareholders.

"An Empirical Analysis of Shanghai Pension System Sustainable Development Methods"
YUXI WANG, Shanghai University of Engineering Science

Using social security actuarial theory and Shanghai pension data, this paper studies and evaluates quantitatively population importing, postponing retirement age, economic development sustainable development policies from a new prospect. The sensitive analysis results indicate that population importing can improve the problem of aging population and pension deficit. The higher population importing proportion, the earlier pension reaches fiscal balance. Postponing retirement age can reduce the pension deficit, but pension cannot reaches fiscal balance in the long run. During the time window between 2008 and 2018, no matter the average wage grows faster or slower, economic development has negligible impact on pension deficit. It is called pension deficit 'window rigidity'.


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Friday, August 5, 2011

New Social Security projections from CBO

The Congressional Budget Office release new projections of Social Security's finances. One thing I particularly like about CBO's work is their focus on uncertainty – trying to get a feel for the things we can't easily predict. So, unlike the Social Security Trustees Report, CBO puts its analysis of uncertainty front and center.

For instance, under CBO's alternative baseline (which is considered the most realistic with regard to what will happen), they project that Social Security faces a 75-year actuarial deficit of 2.0 percent of taxable payroll, slightly smaller than the Trustees projection.

But they also state that they estimate an 80 percent probability that the 75-year deficit will be between 1.0 and 3.5 percent of payroll. So you have a 10 percent chance that the deficit will be smaller than 1 percent – meaning that betting on the system fixing itself it's a particularly good idea – and a 10 percent chance of a deficit larger than 3.5 percent of payroll. This gives a good feel for the range of outcomes that are possible.

As always, well worth checking out.

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