Comparing the Democratic and Republican Platforms on Social Security

Courtesy of the Fiscal Times…

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New paper: "Labor Force Dynamics in the Great Recession and Its Aftermath: Implications for Older Workers"

"Labor Force Dynamics in the Great Recession and Its Aftermath: Implications for Older Workers"
CRR WP 2016-1, July 2016

GARY BURTLESS, Brookings Institution, Boston College - Retirement Research Center
Email: GBURTLESS@BROOK.EDU

Unlike prime-age Americans, who have experienced declines in employment and labor force participation since the onset of the Great Recession, Americans past 60 have seen their employment and labor force participation rates increase. In order to understand the contrasting labor force developments among the old, on the one hand, and the prime-aged, on the other, this paper develops and analyzes a new data file containing information on monthly labor force changes of adults interviewed in the Current Population Survey (CPS). The paper documents notable differences among age groups with respect to the changes in labor force transition rates that have occurred over the past two decades. What is crucial for understanding the surprising strength of old-age labor force participation and employment are changes in labor force transition probabilities within and across age groups.

The paper identifies several shifts that help account for the increase in old-age employment and labor force participation:
- Like workers in all age groups, workers in older groups saw a surge in monthly transitions from employment to unemployment in the Great Recession.
- Unlike workers in prime-age and younger groups, however, older workers also saw a sizeable decline in exits to nonparticipation during and after the recession. While the surge in exits from employment to unemployment tended to reduce the employment rates of all age groups, the drop in employment exits to nonparticipation among the aged tended to hold up labor force participation rates and employment rates among the elderly compared with the nonelderly. Among the elderly, but not the nonelderly, the exit rate from employment into nonparticipation fell more than the exit rate from employment into unemployment increased.
- The Great Recession and slow recovery from that recession made it harder for the unemployed to transition into employment. Exit rates from unemployment into employment fell sharply in all age groups, old and young.
- In contrast to unemployed workers in younger age groups, the unemployed in the oldest age groups also saw a drop in their exits to nonparticipation. Compared with the nonaged, this tended to help maintain the labor force participation rates of the old.
- Flows from out-of-the-labor-force status into employment have declined for most age groups, but they have declined the least or have actually increased modestly among older nonparticipants.
Some of the favorable trends seen in older age groups are likely to be explained, in part, by the substantial improvement in older Americans’ educational attainment. Better educated older people tend to have lower monthly flows from employment into unemployment and nonparticipation, and they have higher monthly flows from nonparticipant status into employment compared with less educated workers.

The policy implications of the paper are:
- A serious recession inflicts severe and immediate harm on workers and potential workers in all age groups, in the form of layoffs and depressed prospects for finding work.
- Unlike younger age groups, however, workers in older groups have high rates of voluntary exit from employment and the workforce, even when labor markets are strong. Consequently, reduced rates of voluntary exit from employment and the labor force can have an outsize impact on their employment and participation rates.
- The aged, as a whole, can therefore experience rising employment and participation rates even as a minority of aged workers suffer severe harm as a result of permanent job loss at an unexpectedly early age and exceptional difficulty finding a new job.
- Between 2001 and 2015, the old-age employment and participation rates rose, apparently signaling that older workers did not suffer severe harm in the Great Recession.
- Analysis of the gross flow data suggests, however, that the apparent improvements were the combined result of continued declines in age-specific voluntary exit rates, mostly from the ranks of the employed, and worsening reemployment rates among the unemployed. The older workers who suffered involuntary layoffs were more numerous than before the Great Recession, and they found it much harder to get reemployed than laid off workers in years before 2008. The turnover data show that it has proved much harder for these workers to recover from the loss of their late-career job loss.

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Provisions of the “Save Our Social Security Act”

Wisconsin Republican Rep. Reid Ribble recently introduced the “Save Our Social Security Act,” which combines tax increases and benefit reductions to restore Social Security to 75-year actuarial balance. The bipartisan bill has been co-sponsored by Reps. Dan Benishek (MI), Jim Cooper (TN), Cynthia Lummis (WY), Scott Rigell (VA) and Todd Rokita (IN).

More information is available at Rep. Ribble’s web page, but following are the main provisions of the bill and the percentage of the 75-year actuarial deficit that each provision would address.

Increase Contribution and Benefit Base (34%)

• Increase payroll subject to taxes over 5 years to 90%, then index to 90% (current cap is $118,500)
  • FY2017: $156,550
  • FY2018: $194,600
  • FY2019: $232,650
  • FY2020: $270,700
  • FY2021: $308,750
  • FY2022: shall be determined by the Commissioner – “such that the percentage of the total earnings for all workers that are taxable is equal to 90% for each calendar year.”

Modification of Primary Insurance Amount (PIA) formula (10%)

Changes to the formula factor used to calculate benefits of high earners from 15% to 5% over 5 years or 2% a year from 2017-2021.

• Adds an additional benefit of 2.5% of earnings over $9,875 (# is equal to current tax cap)
• Current PIA formula for an individual becoming eligible in 2016, will be the sum of:
  • 90 % of the first $856 of average indexed monthly earnings (AIME), plus
  • 32 % of AIME over $856 and through $5,158, plus
  • 15 % of AIME over $5,157 up to $9,875 (# will change to current the tax cap)

Increase Full/Maximum Retirement Age, early retirement remains 62 (35%)

• Starting in 2022, full retirement age increases from age 67 to 69
  • Phase-in of adding 2 months to retirement every year for 12 years (currently 1 month).
• After the phase-in is complete in 2034
  • Increase the NRA 1 month every 2 years to keep up with life expectancy and the ratio of work/retirement, examined every 10 years in case of needed adjustments.
• Extension of maximum age for entitlement to delayed retirement credit to 72 (was 70)

Cost of Living Adjustments (19%)

• Move from current CPI-W to C-CPI-U
  • CPI-U is a more general index and seeks to track retail prices as they affect all urban consumers.
    • Encompasses about 87 % of the U.S. population.
  • C-CPI-U accounts for how people switch their purchases as relative prices change
  • CPI-W is a more specialized index and seeks to track retail prices as they affect urban hourly wage earners and clerical workers.
    • Encompasses about 32% of the U.S. and is a subset of the CPI-U group
    • Places a slightly higher weight on food, apparel, transportation, and other goods and services.
    • It places a slightly lower weight on housing, medical care, and recreation.

Create minimum benefit at 125% Poverty (-5%)

• Percentage of benefit is phased-in dependent upon number of eligible working years

Offer bump-up for very old beneficiaries (-6%)

• Increase benefit amount after 20 years of eligibility

Calculate benefit based on highest 38 years (13%)

• Changes a portion of how benefits are calculated to be based on highest 38 years of work instead of the current 35.
• Change is phased in

Protection of Social Security Trust Fund

• Provides a point of order against consideration of any spending or tax legislation that would cause Trust Fund totals to be less than needed for the covered fiscal year.

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NBER Summer Institute Agenda and Papers (Aging)

NATIONAL BUREAU OF ECONOMIC RESEARCH, INC.

SI 2016 Aging

David M. Cutler, and Jonathan S. Skinner, Organizers

July 25-29, 2016

PROGRAM

Nicole Maestas, Harvard University and NBER
Kathleen Mullen, RAND Corporation
David Powell, RAND Corporation
Till M. von Wachter, University of California at Los Angeles and NBER
Jeffrey B. Wenger, RAND Corporation
American Working Conditions

Daniel K. Fetter, Wellesley College and NBER
Lee Lockwood, Northwestern University and NBER
Government Old-Age Support and Labor Supply: Evidence from the Old Age Assistance Program

David M. Cutler, Harvard University and NBER
Wei Huang, Harvard University
Adriana Lleras-Muney, University of California at Los Angeles and NBER
Economic Conditions and Mortality: Evidence from 200 Years of Data

Ruixue Jia, University of California at San Diego
Hyejin Ku, University College London
The Price of the East Asian Miracle: Generational Cultural Shift and Elderly Suicide

Itzik Fadlon, University of California at San Diego and NBER
Torben Heien Nielsen, University of Copenhagen
Intra-Household Dependencies in Health and Health Behaviors

Gopi Shah Goda, Stanford University and NBER
Matthew Levy, London School of Economics
Colleen Flaherty Manchester, University of Minnesota
Aaron Sojourner, University of Minnesota
Joshua Tasoff
The Role of Time Preferences and Exponential-Growth Bias in Retirement Savings

Daniel J. Benjamin, University of Southern California and NBER
Mark Fontana
Miles S. Kimball, University of Michigan and NBER
Reconsidering Risk Aversion

Partha Bhattacharyya, National Institutes of Health
NIH Funding for Health Economics

Lorenz Kueng, Northwestern University and NBER
Evgeny Yakovlev, Acumen LLC
Long-Run Effects of Public Policies: Endogenous Alcohol Preferences and Life Expectancy in Russia

Sumit Agarwal, National University of Singapore
Jessica Pan, National University of Singapore
Wenlan Qian, National University of Singapore
Age of Decision: Pension Savings Withdrawal and Consumption and Debt Response

Paul Bingley, The Danish National Centre for Social Research
Alessandro Martinello, Lund University
The Effect of Schooling on Wealth Accumulation Approaching Retirement

Xi Chen, Yale University
Lipeng Hu, Peking University
Jody Sindelar, Yale University and NBER
Leaving Money on the Table? Social Pension Enrollment and Well-being of the Aging Population in China

Thomas DeLeire, Georgetown University and NBER
Andre Chappel, U.S. Department of Health and Human Services
Kenneth Finegold, U.S. Department of Health and Human Services
Emily Gee, U.S. Department of Health and Human Services
Do Individuals Respond to Cost-Sharing Subsidies in their Selections of Marketplace Health Insurance Plans?

Jonathan Gruber, Massachusetts Institute of Technology and NBER
Jason Abaluck, Yale University and NBER
Addressing Choice Inconsistencies in Choice of Health Insurance Plans

Pietro Tebaldi, Stanford University
Estimating Equilibrium in Health Insurance Exchanges: Price Competition and Subsidy Design Under the ACA

Amanda Starc, University of Pennsylvania and NBER
Robert Town, University of Pennsylvania and NBER
Internalizing Behavioral Externalities: Benefit Integration in Health Insurance

Leemore Dafny, Northwestern University and NBER
Kate Ho, Columbia University and NBER
Robin S. Lee, Harvard University and NBER
Price Effects of Cross-Market Combinations: Theory and Evidence from Hospital Markets

Nicolas R. Ziebarth, Cornell University
Stefan Pichler, ETH Zurich
The Pros and Cons of Sick Pay Schemes: Testing for Contagious Presenteeism and Shirking Behavior

Benjamin Friedrich, Yale University
Martin Hackmann, Pennsylvania State University
Parental Leave Programs, Nurse Shortages, and Patient Health

 

David W. Silver, University of California at Berkeley
Haste or Waste? Peer Pressure and the Distribution of Marginal Returns to Health Care

Diane E. Alexander, Princeton University
How do Doctors Respond to Incentives? Unintended Consequences of Paying Doctors to Reduce Costs

Zack Cooper, Yale University
Amanda E. Kowalski, Yale University and NBER
Eleanor N. Powell, University of Wisconsin-Madison
What Does a Hospital Do with Eighteen Million Dollars? Evidence From the Passage of Medicare Part D

Scott Barkowski, Clemson University
The Effect of Specialist Cost Information on Primary Care Physician Referral Patterns

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NBER Summer Institute Agenda and Papers (Aging/Social Security)

NATIONAL BUREAU OF ECONOMIC RESEARCH, INC.

SI 2016 Aging/Social Security

Jeffrey B. Liebman, Organizer

July 27, 2016

Royal Sonesta Hotel

PROGRAM

Silvia Garcia-Mandico, Erasmus University Rotterdam
Pilar Garcia-Gomez, Erasmus University Rotterdam
Anne Gielen, Erasmus University Rotterdam
Owen O'Donnell, University of Macedonia
Back to Work: Employment Effects of Tighter Disability Insurance Eligibility in the Netherlands

Dayanand S. Manoli, University of Texas at Austin and NBER
Andrea Weber, University of Mannheim
The Effects of the Early Retirement Age on Retirement Decisions

Alexander M. Gelber, University of California at Berkeley and NBER
Timothy J. Moore, George Washington University and NBER
Alexander Strand, Social Security Administration
The Effect of Disability Insurance Payments on Beneficiaries� Earnings

Marguerite Burns, University of Wisconsin
Laura Dague, Texas A&M University
The Effect of Expanding Medicaid Eligibility on Supplemental Security Income Program Participation

Xi Chen, Yale University
Does Money Relieve Depression? Evidence from Social Pension Eligibility

Xavier Gabaix, New York University and NBER
Behavioral Macroeconomics via Sparse Dynamic Programming

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New paper: “How Can We Realize the Value That Annuities Offer in a 401(k) World?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“How Can We Realize the Value That Annuities Offer in a 401(k) World?”

by Steven A. Sass

The brief’s key findings are:

• A growing number of people are entering retirement with more 401(k) savings and less annuity income from Social Security and traditional pensions.
• Annuities assure a lifelong income stream and – compared to other draw-down options – can provide attractive payouts, which can help cover late-life health costs.
• But few individuals buy annuities, partly due to behavioral barriers such as the complexity of valuing the product and the way that draw-down options are framed.
• Options for overcoming these barriers include:
  • educating individuals to focus more on the income they can draw from their nest egg, rather than its size; and
  • automatically putting a portion of 401(k) assets in an annuity, perhaps an Advanced Life Deferred Annuity that kicks in later in retirement.

This brief is available here. Read more!

New paper: “Labor Force Dynamics in the Great Recession and its Aftermath: Implications for Older Workers”

July 2016

Labor Force Dynamics in the Great Recession and its Aftermath: Implications for Older Workers

by Gary Burtless

WP#2016-1 Abstract

Unlike prime-age Americans, who have experienced declines in employment and labor force participation since the onset of the Great Recession, Americans past 60 have seen their employment and labor force participation rates increase.  In order to understand the contrasting labor force developments among the old, on the one hand, and the prime-aged, on the other, this paper develops and analyzes a new data file containing information on monthly labor force changes of adults interviewed in the Current Population Survey (CPS).  The paper documents notable differences among age groups with respect to the changes in labor force transition rates that have occurred over the past two decades.  What is crucial for understanding the surprising strength of old-age labor force participation and employment are changes in labor force transition probabilities within and across age groups.

The paper identifies several shifts that help account for the increase in old-age employment and labor force participation:

• Like workers in all age groups, workers in older groups saw a surge in monthly transitions from employment to unemployment in the Great Recession.
• Unlike workers in prime-age and younger groups, however, older workers also saw a sizeable decline in exits to nonparticipation during and after the recession. While the surge in exits from employment to unemployment tended to reduce the employment rates of all age groups, the drop in employment exits to nonparticipation among the aged tended to hold up labor force participation rates and employment rates among the elderly compared with the nonelderly.  Among the elderly, but not the nonelderly, the exit rate from employment into nonparticipation fell more than the exit rate from employment into unemployment increased.
• The Great Recession and slow recovery from that recession made it harder for the unemployed to transition into employment. Exit rates from unemployment into employment fell sharply in all age groups, old and young.
• In contrast to unemployed workers in younger age groups, the unemployed in the oldest age groups also saw a drop in their exits to nonparticipation. Compared with the nonaged, this tended to help maintain the labor force participation rates of the old.
• Flows from out-of-the-labor-force status into employment have declined for most age groups, but they have declined the least or have actually increased modestly among older nonparticipants.

Some of the favorable trends seen in older age groups are likely to be explained, in part, by the substantial improvement in older Americans’ educational attainment.  Better educated older people tend to have lower monthly flows from employment into unemployment and nonparticipation, and they have higher monthly flows from nonparticipant status into employment compared with less educated workers.

The policy implications of the paper are:

• A serious recession inflicts severe and immediate harm on workers and potential workers in all age groups, in the form of layoffs and depressed prospects for finding work.
• Unlike younger age groups, however, workers in older groups have high rates of voluntary exit from employment and the workforce, even when labor markets are strong. Consequently, reduced rates of voluntary exit from employment and the labor force can have an outsize impact on their employment and participation rates.
• The aged, as a whole, can therefore experience rising employment and participation rates even as a minority of aged workers suffer severe harm as a result of permanent job loss at an unexpectedly early age and exceptional difficulty finding a new job.
• Between 2001 and 2015, the old-age employment and participation rates rose, apparently signaling that older workers did not suffer severe harm in the Great Recession.
• Analysis of the gross flow data suggests, however, that the apparent improvements were the combined result of continued declines in age-specific voluntary exit rates, mostly from the ranks of the employed, and worsening reemployment rates among the unemployed. The older workers who suffered involuntary layoffs were more numerous than before the Great Recession, and they found it much harder to get reemployed than laid off workers in years before 2008.  The turnover data show that it has proved much harder for these workers to recover from the loss of their late-career job loss.

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