_________________________________________________________________
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. 5, No. 2: January 29, 2004
_________________________________________________________________
Publisher: LSN Employment, Labor, Compensation & Pension Journals
a division of
Social Science Electronic Publishing, Inc. (SSEP)
and Social Science Research Network (SSRN)
Editor: PAMELA PERUN
Urban Institute
Mailto:pamela@planetnow.com
Copyright: SSEP, Inc. 2004. All rights reserved.
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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
_________________________________________________________________
NEW and FORTHCOMING ARTICLES
"Demographic Trends and Pension System in Italy: An Assessment of
1990s Reforms"
Labour, Vol. 17, pp. 209-240, August 2003
EMANUELE BALDACCI
International Monetary Fund (IMF)
Fiscal Affairs Department
DONATELLA TUZI
Italian Statistical Office - Economic Statistics
Department
WORKING PAPERS
"Benefit-Cost Analysis of Turkish Social Security Reform
Proposals"
ERDAL GUMUS
Osmangazi University
Public Finance
"Will Social Security and Medicare Remain Viable as the U.S.
Population is Aging? An Update"
HENNING BOHN
University of California, Santa Barbara
CESifo (Center for Economic Studies and Ifo
Institute for Economic Research)
"How Large are the Classification Errors in the Social Security
Disability Award Process?"
HUGO BENITEZ-SILVA
State University of New York
Department of Economics
MOSHE BUCHINSKY
University of California, Los Angeles
Department of Economics
National Bureau of Economic Research (NBER)
JOHN P. RUST
University of Maryland
Department of Economics
National Bureau of Economic Research (NBER)
"The Gender Impact of Pension Reform: And Which Policies Shape
This Impact"
ESTELLE JAMES
Pension Research Institute
ALEJANDRA COX EDWARDS
California State University, Long Beach
Department of Economics
REBECA WONG
University of Maryland - Maryland Population
Research Center
"Privatizing Social Security Under Balanced-Budget Constraints: A
Political-Economy Approach"
ASSAF RAZIN
Tel Aviv University
The Eitan Berglas School of Economics
Centre for Economic Policy Research (CEPR)
CESifo (Center for Economic Studies and Ifo
Institute for Economic Research)
National Bureau of Economic Research (NBER)
EFRAIM SADKA
Tel Aviv University
The Eitan Berglas School of Economics
CESifo (Center for Economic Studies and Ifo
Institute for Economic Research)
National Bureau of Economic Research (NBER)
"Lessons for an Aging Society: The Political Sustainability of
Social Security Systems"
VINCENZO GALASSO
Universita Commerciale di Luigi Bocconi
Innocenzo Gasparini Institute for Economic Research
(IGIER)
Centre for Economic Policy Research (CEPR)
Universidad Carlos III de Madrid
Department of Economics
PAOLA PROFETA
University of Bocconi
Dipartimento di Economia Politica (DEP)
"Employment, Social Security, and Future Retirement Outcomes for
Single Mothers"
RICHARD W. JOHNSON
Urban Institute
MELISSA FAVREAULT
Urban Institute
JOSHUA H. GOLDWYN
Urban 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
_________________________________________________________________
"Demographic Trends and Pension System in Italy: An Assessment of
1990s Reforms"
Labour, Vol. 17, pp. 209-240, August 2003
BY: EMANUELE BALDACCI
International Monetary Fund (IMF)
Fiscal Affairs Department
DONATELLA TUZI
Italian Statistical Office - Economic Statistics
Department
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=440043
Contact: EMANUELE BALDACCI
Email: Mailto:ebaldacci@imf.org
Postal: International Monetary Fund (IMF)
Fiscal Affairs Department
700 19th Street, NW
Washington, DC 20431 UNITED STATES
Co-Auth: DONATELLA TUZI
Email: Mailto:tuzi@istat.it
Postal: Italian Statistical Office - Economic Statistics Department
via C. Balbo 16
00184 - Roma, ITALY
ABSTRACT:
In the last decade the Italian pension system underwent many
changes. The process has started in 1992 with three major reform
laws (passed in 1992, 1995 and 1997), supplemented by many other
minor changes. Among the innovations introduced in the
pay-as-you-go social security system, the most important one is
the more explicit link between pensions and contributions, and
pensions and life expectancy at retirement. The purpose of this
paper is to provide an assessment of both the short-term and the
long-term effects of the social security reforms on pension
expenditure. Notwithstanding the slowdown in the growth rate of
the pension expenditure/GDP ratio, the measures adopted so far
will not be sufficient to eliminate the existing social security
deficit in the next decades, particularly under the assumption
of moderate economic performance and rapid population ageing.
Reducing public pension expenditure requires the completion of
the 1995 reform, a more rapid move towards a multi-pillar
pension scheme, and the implementation of the much needed
growth-enhancing structural reforms.
______________________________
W O R K I N G P A P E R Abstracts
_________________________________________________________________
"Benefit-Cost Analysis of Turkish Social Security Reform
Proposals"
BY: ERDAL GUMUS
Osmangazi University
Public Finance
Date: 2001
Contact: ERDAL GUMUS
Email: Mailto:egumus@ogu.edu.tr
Postal: Osmangazi University
Public Finance
Meselik Campus
Eskisehir, TURKEY
Phone: 0222 239 37 50/1162
ABSTRACT:
There has been consideration of alternative social security
financing methods throughout the world during the last two
decades. One alternative adopted in several countries is the
privatization of so-called pay-as-you-go financing systems. The
purpose of this study is to estimate social benefits and social
costs associated with a Feldsteinian-type gradual privatization
of the three Turkish social security institutions. Based heavily
upon data provided by the International Labor Organization,
financial projections of the three institutions were made and
extended to apply benefit-cost models of privatization. Present
values of the change in net social benefit for each institution
were estimated. The effect of privatization on representative
individuals has been quantified for each institution.
Sensitivity analyses were conducted to determine the robustness
of the estimates.
Benefit-cost results indicate that social benefits associated
with a privatization alternative for each of the three Turkish
social security institutions exceed the social costs even after
adjustments for changes in key parameters that reduce social net
benefits. However, privatization affects current representative
individuals so negatively that it may constitute a "good
political reason" to be against, rather than in favor of,
choosing privatization.
JEL Classification: H55
______________________________
"Will Social Security and Medicare Remain Viable as the U.S.
Population is Aging? An Update"
BY: HENNING BOHN
University of California, Santa Barbara
CESifo (Center for Economic Studies and Ifo
Institute for Economic Research)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=462442
Other Electronic Document Delivery:
http://www.CESifo.de
SSRN only offers technical support for papers
downloaded from the SSRN Electronic Paper Collection
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them into your browser eliminating all spaces.
Paper ID: CESifo Working Paper Series No. 1062
Date: October 2003
Contact: HENNING BOHN
Email: Mailto:BOHN@ECON.UCSB.EDU
Postal: University of California, Santa Barbara
Department of Economics
Santa Barbara, CA 93106 UNITED STATES
Phone: 805-893-4532
Paper Requests:
Hardcopies For Libraries: contact Gertraud Porak, Postal: CESifo
Inc., Poschinger Str. 5, 81679 Munich, Germany.
Mailto:porak@CESifo.de
ABSTRACT:
Yes, subject to concerns about Medicare inefficiencies and
potentially self-confirming skepticism. The U.S. social security
system - broadly defined to include Medicare - faces significant
financial problems as the result of an aging population. But
demographic change is also likely to raise savings, increase
wages, and reduce interest rates, and up to a point, a growing
GDP-share of medical spending is an efficient response to an
aging population. Thus viability is more a political economy
than an economic feasibility issue. To examine the political
viability of social security, I focus on intertemporal
cost-benefit tradeoffs in a median voter setting. For a variety
of assumptions and policy alternatives, I find that social
security should retain majority support.
JEL Classification: H55, E6, J1
______________________________
"How Large are the Classification Errors in the Social Security
Disability Award Process?"
BY: HUGO BENITEZ-SILVA
State University of New York
Department of Economics
MOSHE BUCHINSKY
University of California, Los Angeles
Department of Economics
National Bureau of Economic Research (NBER)
JOHN P. RUST
University of Maryland
Department of Economics
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=486223
Paper ID: NBER Working Paper No. W10219
Date: January 2004
Contact: MOSHE BUCHINSKY
Email: Mailto:buchinsky@econ.ucla.edu
Postal: University of California, Los Angeles
Department of Economics
Box 951477
Los Angeles, CA 90095-1477 UNITED STATES
Co-Auth: HUGO BENITEZ-SILVA
Email: Mailto:hugo.benitez-silva@sunysb.edu
Postal: State University of New York
Department of Economics
Stony Brook, NY 11794 UNITED STATES
Co-Auth: JOHN P. RUST
Email: Mailto:jrust@gemini.econ.umd.edu
Postal: University of Maryland
Department of Economics
College Park, MD 20742 UNITED STATES
Paper Requests:
Full-Text downloads are available from SSRN Online for $5.
ABSTRACT:
This paper presents an 'audit' of the multistage application and
appeal process that the U.S. Social Security Administration
(SSA) uses to determine eligibility for disability benefits from
the Disability Insurance (DI) and Supplemental Security Income
(SSI) programs. We study a subset of individuals from the Health
and Retirement Study (HRS) who applied for DI or SSI benefits
between 1992 and 1996. We compare the SSA's ultimate award
decision (i.e. after allowing for appeals) to the applicant's
self-reported disability status. We use these data to estimate
classification error rates under the hypothesis that applicants'
self-reported disability status and the SSA's ultimate award
decision are noisy but unbiased indicators of, a latent 'true
disability status' indicator. We find that approximately 20% of
SSI/DI applicants who are ultimately awarded benefits are not
disabled, and that 60% of applicants who were denied benefits
are disabled. Our analysis also yields insights into the
patterns of self-selection induced by varying delays and award
probabilities at various levels of the application and appeal
process. We construct an optimal statistical screening rule
using a subset of objective health indicators that the SSA uses
in making award decisions that results in significantly lower
classification error rates than does SSA's current award
process.
JEL Classification: H3
______________________________
"The Gender Impact of Pension Reform: And Which Policies Shape
This Impact"
BY: ESTELLE JAMES
Pension Research Institute
ALEJANDRA COX EDWARDS
California State University, Long Beach
Department of Economics
REBECA WONG
University of Maryland - Maryland Population
Research Center
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=458303
Contact: ESTELLE JAMES
Email: Mailto:EJAMES@ESTELLEJAMES.COM
Postal: Pension Research Institute
61 Politzer Dr.
Menlo Park, CA UNITED STATES
Phone: 202-338-1451
Fax: 309-419-7133
Co-Auth: ALEJANDRA COX EDWARDS
Email: Mailto:edwards.ac@comcast.net
Postal: California State University, Long Beach
Department of Economics
1250 Bellflower Blvd
Long Beach, CA 90840-4607 UNITED STATES
Co-Auth: REBECA WONG
Email: Mailto:rwong@popcenter.umd.edu
Postal: University of Maryland - Maryland Population Research
Center
2103 Art and Sociology Building
College Park, MD 20742 UNITED STATES
ABSTRACT:
Pension systems may have a different impact on the two genders
because women are less likely than men to work in formal labor
markets and earn lower wages when they do. Recent multi-pillar
pension reforms tighten the link between payroll contributions
and benefits, leading critics to argue that they will hurt
women. In contrast, supporters of these reforms argue that women
will be helped by the removal of distortions that favored men
and the better targeted redistributions in the new systems. In
order to test these conflicting claims and to analyze more
generally the gender impact of alternative pension systems, this
paper examines the differential impact of the new and old
systems in three Latin American countries - Chile, Argentina and
Mexico. Based on household survey data, we simulate the wage and
employment histories of representative men and women, the
pensions that these are likely to generate under the new and old
rules, and the relative gains or losses of the two genders due
to the reform.
We find that women do indeed accumulate private annuities that
are only 30-40% those of men in the new systems. However, this
effect is mitigated by sharp targeting of the new public pillars
toward low earners, many of whom are women, and by restrictions
on payouts from the private pillars, particularly joint annuity
requirements. As a result of these transfers, total lifetime
retirement benefits for women reach 60-80% of those for men and
for "full career" married women they equal or exceed benefits of
men. Also as a result, women are the biggest gainers from the
pension reform. For women who receive these transfers,
female/male ratios of lifetime benefits in the new systems
exceed those in the old systems in all three countries. Private
intra-household transfers from husband to wife in the form of
joint annuities play the largest role. Women who work no longer
have to give up their own annuity to get this widows' benefit,
as they did in some old systems.
______________________________
"Privatizing Social Security Under Balanced-Budget Constraints: A
Political-Economy Approach"
BY: ASSAF RAZIN
Tel Aviv University
The Eitan Berglas School of Economics
Centre for Economic Policy Research (CEPR)
CESifo (Center for Economic Studies and Ifo
Institute for Economic Research)
National Bureau of Economic Research (NBER)
EFRAIM SADKA
Tel Aviv University
The Eitan Berglas School of Economics
CESifo (Center for Economic Studies and Ifo
Institute for Economic Research)
National Bureau of Economic Research (NBER)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=449266
Other Electronic Document Delivery:
http://www.CESifo.de
SSRN only offers technical support for papers
downloaded from the SSRN Electronic Paper Collection
location. When URLs wrap, you must copy and paste
them into your browser eliminating all spaces.
Paper ID: CESifo Working Paper Series No. 1039
Date: September 2003
Contact: ASSAF RAZIN
Email: Mailto:razin@post.tau.ac.il
Postal: Tel Aviv University
The Eitan Berglas School of Economics
P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978, ISRAEL
Phone: +972 3 640 7303
Fax: +972 3 640 9908
Co-Auth: EFRAIM SADKA
Email: Mailto:sadka@econ.tau.ac.il
Postal: Tel Aviv University
The Eitan Berglas School of Economics
P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978, ISRAEL
Paper Requests:
Hardcopies For Libraries: contact Gertraud Porak, Postal: CESifo
Inc., Poschinger Str. 5, 81679 Munich, Germany.
Mailto:porak@CESifo.de
ABSTRACT:
The aging of the population shakes the public finance of
pay-as-you-go social security systems. We develop a
political-economy framework in which this demographic change
leads to the downsizing of the social security system, and, as a
consequence, to the emergence of supplemental individual
retirement programs. Making the balanced-budget rule (of the
type of the Stability and Growth Pact in the EU) more flexible,
to accommodate a one-shot cost of the social security reforms,
is shown to facilitate the political-economy transition from a
national to a private pension system, through an endogenously
determined shift in the political economy equilibrium.
JEL Classification: G1
______________________________
"Lessons for an Aging Society: The Political Sustainability of
Social Security Systems"
BY: VINCENZO GALASSO
Universita Commerciale di Luigi Bocconi
Innocenzo Gasparini Institute for Economic Research
(IGIER)
Centre for Economic Policy Research (CEPR)
Universidad Carlos III de Madrid
Department of Economics
PAOLA PROFETA
University of Bocconi
Dipartimento di Economia Politica (DEP)
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=464101
Paper ID: IGIER Working Paper No. 244
Date: October 2003
Contact: VINCENZO GALASSO
Email: Mailto:vincenzo.galasso@uni-bocconi.it
Postal: Universita Commerciale di Luigi Bocconi
Innocenzo Gasparini Institute for Economic
Research (IGIER)
Via Salasco 5
20136 Milan, ITALY
Phone: +39 02 5836 5319
Fax: +39 02 5836 5318
Co-Auth: PAOLA PROFETA
Email: Mailto:paola.profeta@uni-bocconi.it
Postal: University of Bocconi
Dipartimento di Economia Politica (DEP)
Via Gobbi 5
20136 Milan, ITALY
Paper Requests:
Contact: Nicola Scalzo, IGIER Universita Bocconi, via Salasco 5,
20136 Milano, Italy. Phone:+39-02-5836.3301.
Fax:+39-02-5836.3302. Mailto:igier@uni-bocconi.it
ABSTRACT:
What is the future of social security systems in OECD countries?
In our view, the answer belongs to the realm of politics. We
evaluate how political constraints shape the social security
system in six countries - France, Germany, Italy, Spain, the UK
and the US - under population aging. Two main aspects of the
aging process are relevant to the analysis. First, the increase
in the dependency ratio - the ratio of retirees to workers -
reduces the average profitability of the unfunded social
security system, thereby inducing the agents to reduce the size
of the system by substituting their claims towards future
pensions with more private savings. Second, an aging electorate
leads to larger systems, since it increases the relevance of
pension spending on the policy-makers' agenda. The overall
assessment from our simulations is that the political aspect
dominates in all countries, albeit with some differences. Spain,
the fastest aging country, faces the largest increase in the
social security contribution rate. When labor market
considerations are introduced, the political effect still
dominates, but it is less sizeable. Country specific
characteristics (not accounted for in our simulations), such as
the degree of redistribution in the pension system and the
existence of family ties in the society, may also matter. Our
simulations deliver a strong policy implication: an increase in
the effective retirement age always decreases the size of the
system chosen by the voters, while often increasing its
generosity. Finally, delegation of pension policy to the EC may
reduce political accountability and hence help to reform the
systems.
Keywords: Political Equilibria, Demographic Dynamics,
Retirement Age
JEL Classification: H55, E17, D72
______________________________
"Employment, Social Security, and Future Retirement Outcomes for
Single Mothers"
BY: RICHARD W. JOHNSON
Urban Institute
MELISSA FAVREAULT
Urban Institute
JOSHUA H. GOLDWYN
Urban Institute
Document: Available from the SSRN Electronic Paper Collection:
http://papers.ssrn.com/paper.taf?abstract_id=449781
Other Electronic Document Delivery:
http://www.bc.edu/centers/crr/papers/wp_2003-14.pdf
SSRN only offers technical support for papers
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Paper ID: CRR Working Paper No. 2003-14
Date: July 2003
Contact: RICHARD W. JOHNSON
Email: Mailto:Rjohnson@ui.urban.org
Postal: Urban Institute
2100 M Street, NW
Washington, DC 20037 UNITED STATES
Phone: 202-261-5541
Fax: 202-833-4388
Co-Auth: MELISSA FAVREAULT
Email: Mailto:mfavreau@ui.urban.org
Postal: Urban Institute
2100 M Street, NW
Washington, DC 20037 UNITED STATES
Co-Auth: JOSHUA H. GOLDWYN
Email: not available
Postal: Urban Institute
2100 M Street, NW
Washington, DC 20037 UNITED STATES
Paper Requests:
Contact Amy Chasse, Communications Specialist, Center for
Retirement Research, Boston College, Fulton Hall 550, Chestnut
Hill, MA 02467-3808. Phone: (617)552-6783. Fax: (617)552-1750.
Mailto:chassea@bc.edu
ABSTRACT:
Employment rates for single mothers with dependent children have
risen steadily in recent years, due in part to welfare reform
and expansions in the Earned Income Tax Credit. This paper
examines this recent increase and analyzes the implications for
future retirement security. The results show that increases in
employment and earnings for single mothers during the late 1990s
will translate into modestly higher Social Security benefits and
better retirement outcomes when they reach later life, assuming
these trends persist. Despite this improvement, however, most
single mothers will continue to fare worse in retirement than
other women, primarily because they generally earned low wages
throughout their working lives and many lack financial support
from spouses.