Year

2016

Series

Upjohn Institute working paper ; 16-263

DOI

10.17848/wp16-263

Abstract

I examine if the positive correlation between wealth and survivorship has any implications for the progressivity of Social Security’s current benefit-earnings rule. Using a general-equilibrium macroeconomic model calibrated to the U.S. economy, I show that the optimal benefit-earnings link for Social Security is largely insensitive to wealth-dependent mortality risk. This is because while a more progressive benefit-earnings rule provides increased insurance for households with relatively unfavorable earnings histories, and therefore lower savings and survivorship, their relatively high mortality risk heavily discounts the utility from old-age consumption. I find that these two effects roughly offset each other, yielding nearly identical optimal benefit-earnings rules both with and without differential mortality.

Issue Date

September 29, 2016

Note

Early Career Research Award 15-150-01

Sponsorship

Upjohn Institute

Subject Areas

LABOR MARKET ISSUES; Retirement and pensions

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Citation

Bagchi, Shantanu. 2016. "Differential Mortality and the Progressivity of Social Security." Upjohn Institute Working Paper 16-263. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. https://doi.org/10.17848/wp16-263