"Social Security Annuities and Transfers: Distributional and Tax Implications"

The division of social security (OASI) benefits into an annuity portion and a transfer portion has been well documented. I have discussed this issue extensively in previous work (1987b, 1988, 1990, and forthcoming), as did Burkhauser and Warlick (1981) previously. My methodology is quite similar to theirs. The annuity portion is defined as the benefit level the worker would receive on the basis of his(her) contributions into the social security system (OASI) if the system were actuarially fair. The calculation is based on the worker's estimated earnings history and actual social security tax rates. The transfer portion is the difference between the actual social security benefit received and the actuarially fair annuity equivalent. As we shall see below, it has been uniformly positive for workers who have retired on or before 1983. Burkhauser and Warlick examined the relative proportions of annuity versus transfer benefits by income class and age group. However, they did not conduct an extensive examination of the overall distributional implications of who social security transfer portion. Nor did they consider the tax implications of treating social security transfers as taxable income. These are the principal subjects of the current paper. With regard to the distributional implications of the social security system, I will examine three sets of issue. First, I will consider what the relative magnitudes have been of the annuity and transfer portions of social security income. Since I have data for three years, a related issue is whether the relative proportions have changed over time. Second, I will consider how the social security transfer portion has affected the distribution of income among elderly households. Has the transfer component been neutral or has it tended to redistribute income toward lower income elderly households? Third, the same issue can be addressed with regard to household wealth, in which social security benefit flows are transformed (capitalized) into wealth equivalents From a policy point of view, the more interesting issue is how do the total taxes of the elderly change with the removal of the exclusion of social security transfer income -- that is, when social security transfer income is treated as taxable income. There are three questions of interest. First, how does the change in tax treatment affect the post-tax distribution of income. Second, which groups of elderly are most affected by the change in tax treatment. Third, what is the total challge in the magnitude of tax revenues. As a final point of policy interest, I will also consider whether the extra revenues generated by the new tax treatment of social security income can serve as a "social security capital fund" to reduce the growing wealth gap among age groups in the U.S. As will become apparent in the analysis, the social security system has been quite generous to today's elderly, providing them with benefits far in excess of their contributions into the system. Moreover, young families have fared rather poorly over the last several decades in regard to their income and wealth accumulation. I will propose a policy vehicle below, called a "social security capital fund", which can serve as an additional source of capital for today's young workers. The source of the funding can potentially come from the extra tax revenues from elderly households. It is thus also of interest to analyze whether the additional tax revenues are large or small relative to the wealth holdings of young households and whether such a fund can make a significant difference in the well-being of younger families.

Skills, Computerization, and Earnings in the Postwar U.S. Economy

Using both time-series and pooled cross-section, time-series data for 44 industries over the period 1947-1997 in the United States, no evidence is found to support the idea that the growth of skills or educational attainment had any statistically significant effect on growth of earnings. On the other hand, earnings growth is found to be positively related to overall productivity growth and equipment investment, while computerization and international trade both had a retardant effect on earnings.

"The Adequacy of Retirement Resources among the Soon-to-Retire, 1983-2001"

A central issue confronting soon-to-retire workers (i.e., those aged 47Ð64) is whether they will have command over enough resources (both private and public) to maintain a decent standard of living in retirement. Typically, the adequacy of projected retirement income is judged in relation to some absolute standard (e.g., poverty threshold) and preretirement income (Òreplacement rateÓ). Using data from the Federal Reserve BoardÕs Survey of Consumer Finances for 1983, 1989, and 2001, I find that expected retirement income grew robustly from 1989 to 2001 (by 38 percent in real terms) and the share with expected retirement income less than twice the poverty line fell by 5 percentage points. The percentage-point decline was even greater for minority households (11.6) and single females (5.7). The change in the share with replacement rates over 50 percent was 4.5 percentage points, though in this case much lower for minorities (0.9 percentage points) and single females (1.8 percentage points). However, percentage point changes for minorities and single females were much smaller, at 75 percent and a 100 percent replacement rates, respectively. Moreover, retirement wealth is very unevenly distributed. Whites and married couples had substantially larger wealth accumulations than their respective counterparts.

The Goodness of Match

Though the statistical techniques vary, the matching problem is essentially the same in each case and can be stated formally as follows: Given "observations on X,Y from one sample and on X,Z from another sample, when will it be true that by matching observations according to X, an artificial Y,Z sample will result whose distribution is the true joint Y,Z distribution?"(Sims,1972, p. 355). Though the imputed Y,Z distribution will, in general, be different from the true Y,Z distribution, the closeness of the two yields a natural criterion of the goodness of match. By making certain simplifying assumptions, we can make this criterion operational. The goodness of match depends on how much of the relation between Y and Z is transmitted through X - that is, on how X "mediates" between Y and Z. Since the functional form the lower and upper bounds on the true correlation between Y and Z takes depends on the number of X variables, we shall treat the problem in three stages: (a) The case of one mediating variable.(b) The case of two mediating variables. (c) The case of n mediating variables.

The Devolution of the American Pension System: Who Gained and Who Lost?

One of the most dramatic transformations in the economy over the last two decades has been the replacement of traditional Defined Benefit (DB) pension plans with Defined Contribution (DC) pensions. Using data from the 1983, 1989, and 1998 Survey of Consumer Finances (SCF), I find that among age group 47-64, the proportion with a DB plan plummeted from 69% to 42% between 1983 and 1998 and the share with a DC plan skyrocketed from 12% to 60%. However, median Private Accumulations (the sum of net worth and pension wealth) fell by 14% among middle-aged households over this period. The inequality of total pension wealth increased sharply over this period as a result of the switchover from DB plans to DC accounts. DB pension wealth is also found to have a very modest equalizing effect on overall wealth inequality. Moreover, DB pension wealth has a weaker offsetting effect on wealth inequality in 1998 than in 1983.Pension

Productivity, computerization, and skill change

Until recently, most studies examining the effect of computerization on productivity have shown little evidence of a payoff to computer investment in terms of productivity growth. Most of these studies have focused on the connection between information technology (IT) or information and communications technology (ICT) and productivity, but few have examined the linkages between IT and broader indicators of structural change. This article helps fill that gap. ; The article concentrates on the relation of skills, education, and computerization to productivity growth and other indicators of technological change on the industry level. After reviewing the pertinent literature, the author introduces an accounting framework and model and presents descriptive statistics on post-World War II productivity trends and key variables that have shaped productivity growth patterns during that period. A multivariate analysis on the industry level assesses these variables' influence. ; The analysis shows no evidence that the growth of educational attainment has any statistically measured effect on industry productivity growth. The growth in cognitive skills, on the other hand, is significantly related to industry productivity growth though the effect is very modest. In addition, the study finds no econometric evidence that computer investment is positively linked to total factor productivity growth. The author concludes that the effects of IT show up more strongly in terms of measures of structural change rather than in terms of productivity.Productivity ; Technology ; Information technology ; Employees, Training of

Computerization and Rising Unemployment Duration

With a given unemployment rate, duration of joblessness can vary substantially. The unemployment rate will be the same if four million workers are unemployed for three months on average, as when one million workers loose their jobs for a full year. Yet the consequences for the mental state of the people without jobs, for their behavior, and for the functioning of society are probably far more severe when the average period between jobs is much longer. The authors turn next to their main empirical study, the multivariate regression analysis, to sort out the effects of technological, institutional, and demographic variables on changes in unemployment duration. The analysis is based on aggregate time-series data for the US, covering the period from 1948 to 1997. The duration of unemployment has risen rather dramatically over the last half century. The percentage of unemployed workers out of work 15 or more weeks more than doubled over the same period, while the percentage of the unemployed out of work 27 or more weeks tripled.

What's Behind the Recent Rise in Profitability?

Profitability in the United States has been rising since the early 1980s and by 1997 was at its highest level since its postwar peak in the mid 1960s, and the profit share, by one definition, was at its highest point. In this paper I examine the role of the change in the profit share and capital intensity, as well as structural change, on movements in the rate of profit between 1947 and 1997. Its recent recovery is traced to a rise in the profit share in national income, a slowdown in capital-labor growth on the industry level, and employment shifts to relatively labor-intensive industries.

"Skills, Computerization, and Earnings in the Postwar U.S. Economy"

Using both time-series and pooled cross-section, time-series data for 44 industries over the period 1947-1997 in the United States, no evidence is found to support the idea that the growth of skills or educational attainment had any statistically significant effect on growth of earnings. On the other hand, earnings growth is found to be positively related to overall productivity growth and equipment investment, while computerization and international trade both had a retardant effect on earnings.