Differential Mortality and the Progressivity of Social Security
Early Career Research Award
Social Security benefits in the U.S. are linked to past work-life income through a progressive benefit-earnings formula. In this paper, I examine if this arrangement is optimal in a framework where income and life expectancy are positively correlated. To do this, I construct a general-equilibrium macroeconomic model with optimizing households, firms, and a government, and also with markets for the different goods and services. I calibrate this model to the current U.S. economy, and then compute the optimal degree of progressivity required in the U.S. benefit-earnings rule. I also examine the labor market implications of this benefit-earnings link, both in terms of the fraction of lifetime spent in employment, and also in terms of the hours per week.