nadia s. karamcheva (urban institute), april yanyuan wu ( mathematica policy research),

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


Changes in women’s benefit eligibility at first claiming

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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


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


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


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


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


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


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.

nadia s. karamcheva (urban institute), april yanyuan wu ( mathematica policy research),

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