Economic Effects of Social Security

by Henry Aaron

Overview

The social security system affects people throughout most of their lives, at work and in retirement. The supposed effects of social security on saving, labor supply, and the distribution of income figure prominently in current debates about whether and how to change the system. Theorists have developed alternative analytical frameworks for studying social security, but all involve extreme assumptions introduced for the sake of analytical tractability. Each study seems to describe the behavior of some, but not all or even most people. The shortcomings of available data have created additional roadblocks. As a result, the effects of social security on saving and labor supply are difficult to measure, and how such a complex system influences behavior is not at all well understood.

Yet decisions on social security cannot be avoided. If analysts cannot agree, policymakers are likely to increase the weight they attach to perceptions of equity, adequacy of benefits, fairness of taxes, and similar qualitative considerations. Hence it is desirable for lay observers to understand the framework that analysts use and the reasons why there is so much uncertainty.

This book sheds light on social security issues by examining evidence from economic studies about how the system affects saving, labor supply, and income distribution. It shows that these studies provide little evidence to support or refute assertions that social security has reduced saving, but they do indicate that it has contributed to the trend toward early retirement. The author finds that the aged are now about as well off on the average as the general population and that social security has played a considerable role in bringing about this equality.

This volume is the sixteenth in the second series of Brookings Studies of Government Finance.

Product Details

ISBN-13:	9780815700296
Publisher:	Rowman & Littlefield Publishers, Inc.
Publication date:	11/01/1982
Series:	Studies of Government Finance: Second Series
Pages:	98
Product dimensions:	6.00(w) x 9.00(h) x (d)

About the Author

Henry J. Aaron is a senior fellow in Economic Studies at the Brookings Institution, where he holds the Bruce and Virginia MacLaury Chair. Among his many books are Can We Say No? The Challenge of Rationing Health Care, with William B. Schwartz and Melissa Cox (Brookings, 2006), and Reforming Medicare: Options,Tradeoffs, and Opportunities, written with Jeanne Lambrew (Brookings, 2008).

Table of Contents

"Contents

1. Introduction

The Social Security Program

Differences between Annuities and Social Security

Some Special Terms

The Plan of the Book

2. The Analytical Questions

The Life-Cycle Model

The Multigeneration Model

The Short-Horizon Model

Summary

3. Historical Trends

Saving and Labor Supply

Measures of Social Security Wealth

4. Saving

Time-Series Analysis

Household Cross-sectional Studies

International Cross-sectional Studies

Summary of Evidence on Saving

5. Labor Supply

Fundamental Structure

Specific Aspects of Social Security

Summary of Evidence on Labor Supply

6. Income Distribution

Alternative Frameworks

The Economic Status of the Aged

Effects of the Life-Cycle Distribution of Income

7. Conclusion

"