_________________________________________________________________
E M P L O Y E E B E N E F I T S , C O M P E N S A T I O N
& P E N S I O N L A W
Vol. 4, No. 20: October 23, 2003
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Publisher: LSN Employment, Labor, Compensation & Pension Journals
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Editor: PAMELA PERUN
Urban Institute
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Topic of This Issue:
Social Security
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T A B L E of C O N T E N T S
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NEW and FORTHCOMING ARTICLES
"Accounting for Social Security and Its Reform"
Harvard Journal on Legislation, Winter 2004
HOWELL EDMUNDS JACKSON
Harvard Law School
"Alternative Approaches to Judicial Review of Social Security
Disability Cases"
Administrative Law Review, Vol. 55, 2003
PAUL VERKUIL
Cardozo Law School
JEFFREY S. LUBBERS
American University
Washington College of Law
"The Hidden Public Pension Obligations in Six European States: A
Generational Accounting Perspective"
Accounting Forum, Vol. 27, pp. 185-200, June 2003
PAUL J.M. KLUMPES
University of Nottingham
Nottingham University Business School
WORKING PAPERS
"Social Security, Retirement, and the Single-Mindedness of the
Electorate"
CASEY B. MULLIGAN
University of Chicago
National Bureau of Economic Research (NBER)
FRANCESC XAVIER SALA-I-MARTIN
Columbia University
Department of Economics
National Bureau of Economic Research (NBER)
Universitat Pompeu Fabra
Department of Business and Economics
"Demographics and Volatile Social Security Wealth: Political
Risks of Benefit Rule Changes in Germany"
CHRISTOPH BORGMANN
University of Freiburg, Germany
Institute of Public Finance
MATTHIAS HEIDLER
University of Freiburg, Germany
"Retirement Effects of Proposals by the President's Commission to
Strengthen Social Security"
ALAN L. GUSTMAN
Dartmouth College
Department of Economics
National Bureau of Economic Research (NBER)
THOMAS STEINMEIER
Texas Tech University
Department of Economics
"Do Workers with Low Lifetime Earnings Really Have Low Earnings
Every Year? Implications for Social Security Reform"
THOMAS L. HUNGERFORD
The Levy Economics Institute
S S R N I N F O R M A T I O N
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N E W and F O R T H C O M I N G Articles
_________________________________________________________________
"Accounting for Social Security and Its Reform"
Harvard Journal on Legislation, Winter 2004
BY: HOWELL EDMUNDS JACKSON
Harvard Law School
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=458921
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Paper ID: Harvard Law School, Public Law Working Paper No. 82;
Harvard Law and Economics Discussion Paper No. 443
Date: October 10, 2003
Contact: HOWELL EDMUNDS JACKSON
Email: Mailto:HJACKSON@LAW.HARVARD.EDU
Postal: Harvard Law School
Griswald 402
1563 Massachussetts Avenue
Cambridge, MA 02138 UNITED STATES
Phone: 617-495-5466
Fax: 617-495-5156
Paper Requests:
Contact Karl Coleman, John M. Olin Center for Law, Economics,
and Business at Harvard Law School, Hauser 506, Cambridge, MA
02138. Mailto:kcoleman@law.harvard.edu Phone:(617) 496-1670.
Fax:(617) 496-2256.
ABSTRACT:
How well did the Social Security system do last year? According
to the most recent annual report prepared by system's Board of
Trustees, the Social Security trust funds showed a $165.4
billion net increase in assets in 2002 and reported accumulated
reserves of nearly $1.4 trillion by year end. Unfortunately,
these glowing reports are a cash-flow illusion, revealing only
the difference between the system's annual cash receipts and its
yearly payments for benefits and administrative expenses. Were
the finances of the Social Security system restated under
principles of accrual accounting, which recognizes commitments
to make future payments when those obligations are actually
incurred, the Social Security trust funds would have had to
report a loss of several hundred billion dollars in 2002.
Moreover, as of December 31, 2002, an accrual-based balance
sheet of the Social Security system would have revealed more
than $14.0 trillion of accrued liabilities to Social Security
participants and beneficiaries. Even allowing for the system's
$1.4 trillion of accumulated reserves as well as the value of
excess future taxes to be paid by current participants over the
rest of their working lives, the Social Security trust funds had
unfunded obligations on the order of $10.5 trillion as of
year-end 2002. This implicit debt of the Social Security system
is several times greater than the explicit debt burden of the
federal government and is growing by hundreds of billions of
dollars each year.
In addition to misrepresenting the magnitude of the Social
Security system's looming financial crisis, the current
accounting system for Social Security distorts public debate
over Social Security reform proposals and confuses the
relationship between Social Security and the rest of the federal
budget. Accrual accounting, in contrast, would provide a clearer
picture of the true state of the Social Security's current
financial shortfall and the extent to which the system's burden
on future generations is increasing each year. Accrual
accounting would also create political incentives for our
leaders to address Social Security's difficulties in a timely
manner, and enhance the quality of public debate over the
relative merits of competing reform proposals.
Keywords: Social Security, accounting, federal budget,
pensions, FASAB
JEL Classification: E6, H0, H3, H6, J0
______________________________
"Alternative Approaches to Judicial Review of Social Security
Disability Cases"
Administrative Law Review, Vol. 55, 2003
BY: PAUL VERKUIL
Cardozo Law School
JEFFREY S. LUBBERS
American University
Washington College of Law
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=418241
Paper ID: Cardozo Law School, Public Law Research Paper No. 71
Contact: PAUL VERKUIL
Email: Mailto:verkuil@ymail.yu.edu
Postal: Cardozo Law School
55 Fifth Ave.
New York, NY 10003 UNITED STATES
Phone: 212-790-0310
Fax: 212-790-0203
Co-Auth: JEFFREY S. LUBBERS
Email: Mailto:JSL26@aol.com
Postal: American University
Washington College of Law
4801 Massachusetts Avenue N.W.
Washington, DC 20016 UNITED STATES
ABSTRACT:
For many years, Congress has had various bills before it to
create alternatives to the current practice of Article III
review (in district courts) of Social Security disability cases.
This report, prepared initially for the Social Security Advisory
Board, reviews the various legislative proposals and statutory
alternatives such as the Veterans Administration
administrative/judicial review structure. It concludes that, on
balance, review before an Article I court (with Court of Appeals
review limited to purely legal issues) has numerous advantages
over the present system. These advantages include improvements
in the accuracy and consistency of results (the federal district
courts have vastly divergent reversal rates) and in the creation
of a regulatory feedback loop that would allow the SSA and its
ALJs to learn why cases get reversed or remanded in the first
place. The report disfavors the alternative of Article III
review in a specialized federal court of appeals.
Keywords: Social Security Disability Cases
______________________________
"The Hidden Public Pension Obligations in Six European States: A
Generational Accounting Perspective"
Accounting Forum, Vol. 27, pp. 185-200, June 2003
BY: PAUL J.M. KLUMPES
University of Nottingham
Nottingham University Business School
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=422043
Contact: PAUL J.M. KLUMPES
Email: Mailto:Paul.Klumpes@nottingham.ac.uk
Postal: University of Nottingham
Nottingham University Business School
Jubilee Campus
Wollaton Road
Nottingham NG8 1BB, UNITED KINGDOM
Phone: +44 115 8467414
Fax: +44 115 8466607
ABSTRACT:
Prior accounting research has assumed that public sector
pensions are fully funded. However, with ageing populations,
many European governments provide old age social security by
implicitly transferring wealth from a declining base of younger
generation contributors to a growing number of older generation
pension recipients. Generational accounting is applied to
measure obligations of six European governments to these
unfunded, pay-as-you-go pension systems (PAYG). Generational
accounts for each of five generational cohorts in respect of
unfunded PAYG obligations of six European governments are
projected over the period 1990-2050, showed that the extent of
inter-generational transfers is related to differences in labour
participation rates, generosity and scope of the public pension
system, and the age dependency ratio.
JEL Classification: H25, M41, M47, M48
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Social Security, Retirement, and the Single-Mindedness of the
Electorate"
BY: CASEY B. MULLIGAN
University of Chicago
National Bureau of Economic Research (NBER)
FRANCESC XAVIER SALA-I-MARTIN
Columbia University
Department of Economics
National Bureau of Economic Research (NBER)
Universitat Pompeu Fabra
Department of Business and Economics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=430960
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http://www.econ.upf.es/eng/research/research2.php
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Paper ID: UPF Economics and Business Working Paper No. 686
Date: May 2003
Contact: CASEY B. MULLIGAN
Email: Mailto:c-mulligan@uchicago.edu
Postal: University of Chicago
1126 East 59th Street
Chicago, IL 60637 UNITED STATES
Phone: 773-702-9017
Fax: 773-702-8490
Co-Auth: FRANCESC XAVIER SALA-I-MARTIN
Email: Mailto:XS23@COLUMBIA.EDU
Postal: Columbia University
Department of Economics
420 W. 118th Street
New York, NY 10027 UNITED STATES
Paper Requests:
Please contact Ana Cano, Mailto:ana.cano@ajau.upf.es Postal:
Department of Economics, Universitat Pompeu Fabra, Ramon Trias
Fargas, 25-27 08005 Barcelona, Spain. Phone: 34 93 542 18 63.
Fax: 34-93 542 17 46.
ABSTRACT:
We propose a positive theory that is consistent with two
important features of social security programs around the world:
(1) they redistribute income from young to old and (2) they
induce retirement. We construct a voting model that includes a
'political campaign' or 'debate' prior to the election. The
model incorporates 'single-mindedness' of the groups that do not
work: while the workers divide their political capital between
their 'age concerns' and 'occupational concerns', the retired
concentrate all their political capital to support their age
group. In our model, the elderly end up getting transfers from
the government (paid by the young) and distortionary labor
income taxes induce the retirement of the elderly. In addition,
our model predicts that occupational groups that work more will
tend to have more political power. The opposite is true for
non-occupational groups (such as the elderly). We provide some
evidence that supports these additional predictions.
Keywords: Social Security, retirement, retirement incentives,
single-mindedness, political theories of Social Security
JEL Classification: H55
______________________________
"Demographics and Volatile Social Security Wealth: Political
Risks of Benefit Rule Changes in Germany"
BY: CHRISTOPH BORGMANN
University of Freiburg, Germany
Institute of Public Finance
MATTHIAS HEIDLER
University of Freiburg, Germany
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=443882
Other Electronic Document Delivery:
http://www.CESifo.de
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Paper ID: CESifo Working Paper Series No. 1021
Date: August 2003
Contact: CHRISTOPH BORGMANN
Email: Mailto:borgmann@vwl.uni-freiburg.de
Postal: University of Freiburg, Germany
Institute of Public Finance
D-79098 Freiburg, GERMANY
Co-Auth: MATTHIAS HEIDLER
Email: Mailto:heidler@vwl.uni-freiburg.de
Postal: University of Freiburg, Germany
Albertstr. 26-28
D-79104 Freiburg, GERMANY
Paper Requests:
Hardcopies For Libraries: contact Gertraud Porak, Postal: CESifo
Inc., Poschinger Str. 5, 81679 Munich, Germany.
Mailto:porak@CESifo.de
ABSTRACT:
In this paper we address the question of how the generosity of
the benefit rule of the German public pension system has changed
during the past three decades and how this development can be
explained by demographic changes. Firstly, we illustrate the
political risk of benefit rule changes for individuals. We find
that depending on the birth year and the scenario considered the
relative losses vary between 30 and nearly 60 percent. Secondly,
we estimate how demographic developments have triggered these
changes in generosity. Our results suggest that future
developments of the old-age dependency ratio have an influence
on the determination of generosity.
Keywords: social security wealth, demography, political
economy, Germany
JEL Classification: H55, J18
______________________________
"Retirement Effects of Proposals by the President's Commission to
Strengthen Social Security"
BY: ALAN L. GUSTMAN
Dartmouth College
Department of Economics
National Bureau of Economic Research (NBER)
THOMAS STEINMEIER
Texas Tech University
Department of Economics
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=457552
Paper ID: NBER Working Paper No. W10030
Date: October 2003
Contact: ALAN L. GUSTMAN
Email: Mailto:ALAN.L.GUSTMAN@DARTMOUTH.EDU
Postal: Dartmouth College
Department of Economics
6106 Rockefeller Center
Hanover, NH 03755 UNITED STATES
Phone: 603-646-2641
Fax: 603-646-2122
Co-Auth: THOMAS STEINMEIER
Email: Mailto:Thomas.Steinmeier@TTU.EDU
Postal: Texas Tech University
Department of Economics
Lubbock, TX 79409-2101 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
A structural dynamic model of retirement and saving is used to
simulate the retirement effects of proposals made by the
President's Commission to Strengthen Social Security. Provisions
reducing the growth in real benefits and increasing actuarial
incentives to work reduce retirements. They more than offset
increases in retirements caused by individual accounts,
increased benefits for low wage workers and survivors, and
reductions in the top AIME bracket. By 2075, the Commission's
proposals would reduce retirements at age 62 by roughly 4
percentage points, mitigating an 8.7 percentage point trend to
earlier retirement projected to reassert itself after its recent
interruption.
JEL Classification: H55, J26, J14, J32, E21, D31, D91, I3
______________________________
"Do Workers with Low Lifetime Earnings Really Have Low Earnings
Every Year? Implications for Social Security Reform"
BY: THOMAS L. HUNGERFORD
The Levy Economics Institute
Paper ID: Levy Economics Institute Working Paper No. 389
Date: September 2003
Contact: THOMAS L. HUNGERFORD
Email: Mailto:hungerford@levy.org
Postal: The Levy Economics Institute
Blithewood
Annandale-on-Hudson, NY 12504 UNITED STATES
Phone: 845-758-7700
Fax: 845-758-1149
Paper Requests:
Contact Linda Christensen, Mailto:christen@levy.org Postal: Head
of Information Services, The Levy Economics Institute of Bard
College, Blithewood Avenue, Annandale-on-Hudson, NY 12504.
Phone:(845)758-7700. Fax:(845)758-1149.
ABSTRACT:
When it comes to retirement income policy, there is a general
perception that workers have full 40-year working careers before
retiring. Further, it is generally assumed that workers with low
lifetime earnings have low earnings in each year during a normal
working career. The basic research question is why do some
workers have low lifetime earnings? Is it due to low earnings in
every year, or is it due to some years of no earnings combined
with years of relatively modest earnings? The key findings from
this paper are: (1) most individuals with minimum (and
subminimum) wage lifetime average earnings are women, and (2)
most of these women have low lifetime average earnings because
of fewer years with earnings, rather than low earnings in each
year of a 40-year working career.