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 MeetingWashington, DCAugust 8, 2014
Does Social Security Continue to Favor Couples?
Changing role of women: labor supply
2
Source: Authors calculations using U.S. Social Security Administration Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.
Labor Force Participation, by Marital Status
1931-1935
1936-1941
1942-1947
1948-1953
1954-1959
1960-1965
1966-1975
30%
40%
50%
60%
70%
80%
All women 25-34
Married women 25-34
Birth year
Changing role of women: earnings
3
1931-1935
1936-1941
1942-1947
1948-1953
1954-1959
1960-1965
1966-1975
20%
30%
40%
50%
60%
70%- - - - - Projected
Birth year
Ratio of Median Wife’s to Husband’s Lifetime Earnings
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.
Changing role of women: marital patterns
4
1931-1935
1936-1941
1942-1947
1948-1953
1954-1959
1960-1965
1966-1975
30%
40%
50%
60%
70%
80%
90%
25-34
Birth year
Percent of Women Married, by Age
- - - - - Projected
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.
Changes in women’s benefit eligibility at first claiming
5
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.
DE1 (1931–1935)
DE2 (1936–1941)
War baby (1942–1947)
EBB (1948–1953)
MBB (1954–1959)
LBB (1960–1965)
Gen X(1966–1975)
0
20
40
60
80
100
4455 59
68 71 72 75
3128 28
24 22 21 1825 16 13 8 8 8 7
Auxiliary only
Dually en-titled
Retired worker
Despite gains in work years and earnings, the majority of current and future female retirees would still receive a higher benefit as a survivor
6
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.
DE1 (1931–1935)
DE2 (1936–1941)
War baby (1942–1947)
EBB (1948–1953)
MBB (1954–1959)
LBB (1960–1965)
Gen X(1966–1975)
0
20
40
60
80
10084 80 80
75 73 72 68
Percent of Married Women Who Would Receive Higher Benefit as a Survivor
Research question
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• 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?
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
8
Preview of results
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• 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
• 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)
Data
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• Lifetime benefit/tax ratio = , taxes include employee+employer share
• Net tax rate = • Net transfer = 1 if Net tax rate<0, 0 otherwise
Three Measures of Returns
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Changes in benefit/tax ratios – by Gender
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Median Benefit/tax ratios, Individual level
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.
All Men Women0.0
0.5
1.0
1.5
2.0
2.5
3.0
1.41
1.00
2.57
1.110.92
1.34
DE1 (1931–1935)
DE2 (1936–1941)
War Baby(1942–1947)
EBB (1948–1953)
MBB (1954–1959)
LBB (1960–1965)
Gen X(1966–1975)
Changes in benefit/tax ratios –by Marrital Status
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Median Benefit/tax ratios, Household level
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.
All Never married Currently married
Widowed Divorced 0.0
0.5
1.0
1.5
2.0
2.5
1.36 1.26 1.34
1.68
1.31
1.07 1.03 1.071.23
1.07
DE1 (1931–1935) DE2 (1936–1941)War Baby(1942–1947)EBB (1948–1953)MBB (1954–1959)LBB (1960–1965)Gen X(1966–1975)
Changes in median net tax rate - Household Level
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Median net tax rate, Household level
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.
DE1 (1931–1935)
DE2 (1936–1941)
War Baby(1942–1947)
EBB (1948–1953)
MBB (1954–1959)
LBB (1960–1965)
Gen X(1966–1975)
-5%
-4%
-3%
-2%
-1%
0%
-1.9%
-0.3%
-2.1%
-0.6%
-2.3%
-0.7%
-3.8%
-2.4%
-4.8%
-2.3%
Never married
Married/Two earners
Divorced
Married/Single earner
Widowed
Changes in share with positive net transfers - Household Level
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Share with positive net transfers, Household level
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.
DE1 (1931–1935)
DE2 (1936–1941)
War Baby(1942–1947)
EBB (1948–1953)
MBB (1954–1959)
LBB (1960–1965)
Gen X(1966–1975)
0%
25%
50%
75%
100%
86%
67%
83%
68%
78%
59%
71%
57%
67%
54%
Married/Single earner Widowed Married/Two earners Divorced Never married
Decline is largest for couples with husbands’ earnings in top tercile
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DE 1 vs Gen X cohort, Household level
Source: Authors calculations using U.S. Social Security Administration. Modeling Income in the Near Term, Versions 5 and 6. Washington, DC.
Ben/tax ratio Median net tax rateShare with positive
transfers
DE1 (1931–1935)
Gen X(1966–1975)
DE1 (1931–1935)
Gen X(1966–1975)
DE1 (1931–1935)
Gen X(1966–1975)
Single- earner houshold Low 1.94 1.48 -6.5% -5.7% 87% 81%Husband's earnings
Median 1.42 1.15 -3.0% -1.6% 80% 66%
High 1.29 0.93 -1.7% 0.6% 77% 41% Two-earner household Low 1.49 1.26 -4.2% -3.0% 86% 81%Husband's earnings
Median 1.22 1.07 -1.7% -0.8% 76% 62%
High 1.15 0.92 -1.0% 0.6% 70% 36%
Explaining differences over time
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Factors contributing to the changes over time:
• Labor force participation
• Marriage pattern
• And…changes in FRA and claiming behaviors
Explaining differences between DE 1(1931-1935) and Gen X (1966-1975) cohorts:
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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
Men Women Never Married
Married Widowed Divorced
Individual level Household level
0%
25%
50%
75%
100%
40.8%
74.4% 79.9%68.7%
0.0%18.8%
% Unexplained
% Explained
Percent of the overall change in median benefit/tax ratio explained by differences in the characteristics between earliest and latest cohort
Explaining differences between DE 1(1931-1935) and Gen X (1966-1975) cohorts (cont.)
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Decomposition: Individuals
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).
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
Difference Due to:Demographics -14.8% *** -11.1% *** 12.9% 11.9%Marrital Status 5.7% *** 3.5% *** 1.0% 2.2% *Claiming Behavior 8.0% *** 3.9% ** -23.9% *** -20.3% ***Labor Force Activity 45.7% *** 72.0% *** 64.9% *** 74.5% ***Unexplained factors 55.5% *** 31.8% *** 45.1% *** 31.7% ***
Mean Net Tax Rate
Percentage distribution
Share Receiving Net Transfers
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.
Explaining differences between DE 1(1931-1935) and Gen X (1966-1975) cohorts (cont.)
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Decomposition: Married Couples
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).
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
Difference Due to:
Husband's demographics -3.4% -20.3% * -6.5% **Husband's claiming behavior 8.9% *** 17.8% *** 9.8% ***Husband's labor force activity 2.4% 5.6% 2.6%Wife's demographics -18.5% *** -8.9% -8.3% ***Wife's claiming behavior 3.0% * 7.4% *** 4.3% ***Wife's labor force activity 53.2% *** 76.9% *** 50.4% ***Unexplained factors 54.4% *** 21.5% *** 47.7% ***
Mean benefit/tax ratio
Percentage distribution
Share with net transfers
Mean net tax rate
Wife's labor force activity accounts for more than ½ of the change among married couples.
Conclusion
2121
• 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.