New papers from the SSRN

"Rising Inequality in Life Expectancy by Socioeconomic Status"
Center for Retirement Research at Boston College WP No. 2017-2

GEOFFREY SANZENBACHER, Boston College Economics Department
Email: geoffrey.sanzenbacher.1@bc.edu
ANTHONY WEBB, Boston College - Center for Retirement Research
Email: webbaa@bc.edu
CANDACE M. COSGROVE, U.S. Census Bureau
Email: candace.m.cosgrove@census.gov
NATALIA ORLOVA, Boston College, Center for Retirement Research
Email: nataliyaorlova@mail.ru

Inequality in life expectancy is growing in the United States, but evidence is mixed regarding how much it has grown. Some studies have found that life expectancies have decreased for those with the lowest socioeconomic status (SES). Other studies have found that while inequality is rising, there have been life expectancy gains across the board. A primary difference in these studies is how SES is measured. Some studies use an absolute measure, such as years of school completed, while others use relative measures, such as a person’s ranking of years of school completed compared to others born at the same time. This study uses regression analysis to assign people a relative education ranking and, in doing so, attempts to isolate the changing relationship between SES and mortality from the fact that certain education-based groups, especially high school dropouts, actually have a lower SES level today than in the past. The study finds that when SES is defined in this way – relatively – inequality in mortality by SES is increasing but life expectancies have also increased across SES groups. The study also finds that white women in the bottom of the education distribution have experienced the least improvement of any group. This research suggests efforts to improve the finances of Social Security through higher retirement ages will have to reckon with the distributional effects of increasing inequality in mortality, but not with increases in mortality for large segments of the population.

"Using Kinked Budget Sets to Estimate Extensive Margin Responses: Method and Evidence from the Social Security Earnings Test"
Kelley School of Business Research Paper No. 17-39

ALEXANDER GELBER, National Bureau of Economic Research (NBER), University of California, Berkeley
Email: agelber@nber.org
DAMON JONES, University of Chicago - Irving B. Harris Graduate School of Public Policy Studies
Email: damonjones@uchicago.edu
DANIEL W. SACKS, Indiana University - Kelley School of Business - Department of Business Economics & Public Policy
Email: dansacks@indiana.edu
JAE SONG, U.S. Social Security Administration
Email: jae.song@ssa.gov

We develop a method for estimating the effect of a kinked budget set on workers' employment decisions, and we use it to estimate the impact of the Social Security Old-Age and Survivors Insurance (OASI) Annual Earnings Test (AET). The AET reduces OASI claimants' current OASI benefits in proportion to their earnings in excess of an exempt amount. Using a Regression Kink Design and Social Security Administration data, we document that the discontinuous change in the benefit reduction rate at the exempt amount causes a corresponding change in the employment rate. We develop conditions in a general setting under which we can use such patterns to estimate the elasticity of the employment rate with respect to the effective average net-of-tax rate. Our resulting elasticity point estimate for the AET is at least 0.49, suggesting that the AET reduces employment by more than one percentage point in the group we study.

"Disarming Puerto Rico's Pension Time Bomb"
Law360, April 19, 2017

RICHARD J. COOPER, Cleary Gottlieb Steen & Hamilton LLP - New York Office
Email: rcooper@cgsh.com
LUKE A. BAREFOOT, Cleary Gottlieb Steen & Hamilton LLP - New York Office
Email: lbarefoot@cgsh.com
DANIEL J. SOLTMAN, Cleary Gottlieb Steen & Hamilton LLP
Email: dsoltman@cgsh.com
ANTONIO PIETRANTONI, Cleary Gottlieb Steen & Hamilton LLP - New York Office
Email: apietranton@cgsh.com

With the long-delayed commencement of negotiations between the new government of the Commonwealth of Puerto Rico (the “Commonwealth”) and its financial creditors finally underway, and the expiration of the existing stay on creditor actions looming, much of the financial press’ attention over the next several weeks will undoubtedly be focused on whether the government of Puerto Rico can reach an out of-court settlement with its financial creditors. One issue that has received less attention in the financial press, but which is of paramount importance to a financially secure local economy, is the challenge Puerto Rico confronts in reforming its multiple pension systems. This article identifies the two legal mechanisms available to the Commonwealth government to reform its public pension systems — namely, legislative action or implementation of reforms through one or more Title III proceeding(s) under the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). Focusing on the central government’s Employee Retirement System, which is the largest of the Commonwealth’s public pension systems, we analyze the key considerations that will undoubtedly influence the decision of how to proceed.

"Social Security is Fair to All Generations: Demystifying the Trust Fund, Solvency, and the Promise to Younger Americans"

NEIL H. BUCHANAN, George Washington University Law School
Email: nbuchanan@law.gwu.edu

The Social Security system has come under attack for having illegitimately transferred wealth from younger generations to the Baby Boom generation. This claim is incorrect, because it fails to understand how the system was altered in order to force the Baby Boomers to finance their own benefits in retirement. Any challenges that Social Security now faces are not caused by the pay-as-you-go structure of the system but because of Baby Boomers’ other policy errors, especially the emergence of extreme economic inequality since 1980. Attempting to fix the wrong problem all but guarantees a solution that will make matters worse.

"Extending the 'Social Safety Net': Female Labor Supply and Pension Eligibility"

BENJAMIN THOMPSON, University of Michigan at Ann Arbor, Students , University of Michigan at Ann Arbor - Population Studies Center
Email: bpthomp@umich.edu

A 1991 legal change extended the coverage of pensions in rural Brazil to include large numbers of previously uncovered women, conditional on subjective work requirements. This change was accompanied by an increase in female employment, in particular among newly covered women. This paper analyzes the extent to which a causal relationship existed between these two phenomena; specifically, the extent to which women increased their labor supply in response to future pension eligibility. Using a differences-in-differences approach, I find evidence that pension eligibility increased the labor supply of rural women in two ways. First, I find that rural women made immediately eligible by age temporarily increased labor supply, and second, I find that at least some cohorts of younger rural women eligible in the future also increased labor supply, presumably as an anticipatory response. These results shed light on the capacity of elderly workers to respond to financial incentives for old-age labor supply participation, in addition to the extent to which younger workers might be forward-looking in their responses to retirement incentives.