Courtney Coile, Kevin S. Milligan, and David A. Wise write,
This is the introduction and summary to the seventh phase of an ongoing project on Social Security Programs and Retirement Around the World. The project compares the experiences of a dozen developed countries and uses differences in their retirement program provisions to explore the effect of SS on retirement and related questions. The first three phases of this project document that: 1) incentives for retirement from SS are strongly correlated with labor force participation rates across countries; 2) within countries, workers with stronger incentives to delay retirement are more likely to do so; and 3) changes to SS could have substantial effects on labor force participation and government finances. . .
This seventh phase of the project explores whether older people are healthy enough to work longer. We use two main methods to estimate the health capacity to work, asking how much older individuals today could work if they worked as much as those with the same mortality rate in the past or as younger individuals in similar health. Both methods suggest there is significant additional health capacity to work at older ages.
The simplest, most logical fix for entitlement programs is to raise the age of government dependency. Most people ought to be able to support themselves well into their seventies. Those of us who want to stop working earlier can plan for it and pay for it ourselves.
If Social Security and Medicare had been indexed for longevity from the outset, those two programs would not be in trouble today.
So we bring in immigrant to take jobs from 60 year old and then we tell the 60 year olds, sorry, your retirement has been delayed 10 years. You should have thought about that back in 1997 when you took that California vacation. This is why people hate libertarians.
The libertarians, smugly ensconced in their academic sinecures, would cheerfully tell you that the displaced 60 year olds should find a new jobs for their golden years at Burger King or Starbucks. Average is over, losers; get used to it! Oh, and if you complain, you’re a bigoted troglodyte who wants to “harm” foreigners.
Just to clarify, I think raising the retirement age is a good idea (contrary to my own interests – I’m already in my 50s, sad to say), and I agree that older workers are not at the greatest risk of losing their jobs to immigrants.
However, since somebody else brought up immigration, I thought I would provide a helpful summary of libertarian thought on that issue. Was I charitable enough? I would venture to say that I was being more charitable to libertarians than they are to people who disagree with them on immigration.
When you say “libertarians on immigration” you are being inaccurate in 3 ways. First, you mean a few libertarians. Second, even of those immigration extremist libertarians, few of them don’t want to also reform entitlements and public services- my idea is an immigration “tax.” Third, I think you really mean Democrats because those are the people who actively want to extract wealth from America and transfer it to poor immigrants both directly and indirectly.
I am not a libertarian, but your argument is a mess.
First, you have committed the lump of labor fallacy. Reasonable levels of increased immigration brings in both consumers and workers, and in general tends to raise or not harm average living standards of both the immigrant and the existing worker. I can of course envision rates of immigration which counteract this general trend though.
Second, it would be unfair to change benefits to a retired or nearly retired person who had reasonably planned on its existence. This is not the same as announcing plans on changes in the future which workers can prepare ahead decades in advance.
Indeed, immigrants can help fund the benefits and offset the demographic pressures of the system, thus partially reducing the need to restrict benefits.
My preferred solution to SS is simple. Allow people to choose between slightly higher taxes or slightly later retirement age. Those near retirement would logically choose the higher taxes and those younger could choose whichever and pay accordingly, thus immediately eliminating any underfunding. And of course, I would encourage more legal immigration.
It isn’t us you ninnies. We are just the ones telling the truth about what Democrats and Republicans will be selling you in a couple years.
The big job suck is foreign competition. One of the reasons our fixed labor costs are so uncompetitive is poorly structured entitlements. Libertarians aren’t changing any deal, reality is, people made a deal that couldn’t be sustained.
Immigration and free trade have had negative impacts to specific labor groups, but generally the affected groups haven’t been age specific. Young high school dropouts are negatively impacted by surges in low skill immigration as well as low-skill 60+ individuals.
Secondly, Kling has been quite conservative on immigration.
Personally, raising the retirement age sounds like a very good, safe move. Especially when today’s work is less physically demanding, health options for limiting the affects of age are much better, and today’s careers expect much larger time investment in skill development.
Why not just stop SS anual CPI increases for anyone who receives about say $900/month from SS.
There are a lot of ways to fix SS that are really very sensible. It says a lot about the political process that it can’t get any of them done.
Why do we need a “fix?” I prefer to take my cues from markets, not “experts,” and the bond market is telling us there is no fiscal concern.
Heh. Maybe we should just pay all Social Security benefits in newly minted dollars so long as inflation is trending below 2%.
Isn’t that called an inflation-targeting-central-bank? i.e, “bolster money creation provided inflation is under target”
I would argue you’re better off giving money to the elderly than lowering interest rates or performing QE which seem to feed disproportionately into financial asset prices; thus leaving those with no financial assets high-and-dry.
Maybe an earned income tax credit for the elderly. But then, why aren’t they doing anything of the sort?
The bond market is telling us there is economic stagnation and that we enjoy dollar hegemony. And there is “no fiscal concern” in part because we can always (and will) reduce payouts (or inflate). That’s not a good (or particularly resilient) thing. In fact, I think it is what we are doing right now to delever the banks. It’s not awesome.
30yr inflation expectations are 1.5%. The market firmly does not believe we will inflate. Stagnate? yes. Inflate? no.
It seems pretty clear that demographic trends are going to force us to do something along these lines. The problem we are facing is that there are other trends too, and they don’t bode well for workers that are steeply declining in their productivity. Whether we handle this well or not we have a huge pending social justice dilemma. We are creating a world where rapidly increasing numbers of people are going to live well past their break even point, when they are simply no longer capable of contributing as much as they consume. This will outstrip our capacity to save eventually.
We can rejigger the rules to ameliorate this situation, but the future will leave us with some unpleasant choices sooner or later.
Calling this government dependency is an overstatement, not so much for medicare, but mostly for social security since they have paid for it. They may chose to work longer or pay more but if innovation is down paying more may be more attractive. It would be counter intuitive to choose work over leisure with greater affluence, though most of those proposing this want to see the elderly less affluent.
” mostly for social security since they have paid for it.” No, they haven’t. They paid the previous generation. The government fraudulently tells people “they have paid for it.”
We wouldn’t be having this conversation if liberal professors weren’t bringing it up because the money is gone and the government needs a bailout.
“most of those proposing this want to see the elderly less affluent.” That’s silly. 1. If the elderly are “affluent” then what is the rationale for giving them welfare (that could be used more effectively elsewhere for one thing). 2. This is liberals (finally) concerned over this (now that it is too late). Trust me, they are only concerned because it threatens the government. 3. Obviously, nobody wants the elderly less affluent- even if being affluent means taking money from others- but means-testing is a no-brainer.
Equivalently we tell government bondholders they have paid for them when they haven’t; instead they avoided paying taxes. We are all more affluent over time, for the same age, That is different from more affluent over age at the same time. There is little to be concerned over; this is mostly an issue for the next generation. Slower population growth requires adjustment and I expect they will make a reasonable decision. It is the unreasonableness of proposed decisions that prevents this from happening. If no brainer means without a brain then yes as given the modesty of social security, it is already means tested and means testing offers little of solution.
The point of Social Security is not to provide a pension that people pay into and then take out of.
It is also not designed as a backstop annuity.
If that was the point, the government would simply issue you a bond or annuity account which is topped up with exactly the money you contribute (or are forced to contribute). The EV of your payout would then be linearly proportional to your contribution.
The point of SS is to create an enormous government bureaucracy that purports to do the above, and use this huge income stream to hide a redistribution program which is the purpose all along.
Payouts to those with smaller salaries or less years in the work force are greater than expected actuarial value, and payouts to those of higher salaries and longer work history are lower than expected actuarial value.
One big problem with all these plans is the fact that many people get tossed out of their jobs in their 50s and finding new employment is a long or unfruitful process. Jobs with lower compensation are often found.
Now whether this is based on job ability impacted by age or the rise in health insurance use starting in the 50s? Maybe that should phase 8 of the study.
But what is the impact on productivity to have a lot of older workers rather than moving younger still innovative workers into those jobs? And yes, those workers will be likely lower paid. If that is the case, then the older worker either gained higher wages not tied to productivity or their productivity declined but wages were sticky, or the employer finds the decline in productivity in moving to younger workers acceptable for the training/experience period.
So we college professors could easily work to age 70, and many of us do. Not that students necessarily benefit. But the lady who cleans the building–the one whose feet ache and whose back hurts–for her working to 70 is impossible. Even 62 is a stretch.
So some accommodation has to be made.
Hey! I was going to post this! Except I was going to talk about bricklayers. Maybe solve it in part with something like the current increase in social security monthly payments for people who retire later, but the curve is steeper?
On indexing the SS, life expectancy at 50 (or 60? or 65?) is better than from at birth. Tho expectancy is different than median.
We don’t have a good standard way to discuss these differences.
There should be far more emphasis on part time jobs for the elderly, so that they can be retired from their main career yet also have some paid activity that adds to their cash, while also perhaps giving them something to do. Assistance at pre-school, kindergartens, and even elementary schools comes to mind as a potential source of activity that many recent retirees might like.
Non-profit & gov’t orgs should be pushing 20+ year highly paid careerists out into retirement, and this should be encouraged and allowed by the gov’t – especially those making more than the US median (~$50k/yr).