Worldwide trends and developments in social security, 1985-87

This article highlights major trends and developments in social security programs featured in the publication Social Security Programs Throughout the World, 1987. Certain developments observable in industrialized countries, especially in Europe--continuing high unemployment levels, particularly among the young; growing numbers of long-term unemployed; and aging populations--tend to create financial instability in social security programs. Thus, as program costs continue to rise, the emphasis on cost-effective use of social security funds becomes more pronounced. In the period under review, this concern is reflected in the widening interest in mandated private pension supplementation of social security, as well as in measures to encourage employment. In developing countries, a strengthening of programs for families and, in some instances, a lowering of the retirement age are noted, in addition to a general expansion in the benefit structure of the work-injury program.     

Worldwide trends and developments in social security, 1983-85

This article highlights the major developments and trends in social insurance programs that are presented in detail in the 1985 edition of Social Security Programs Throughout the World. The data in that reference book reflect the fact that as countries have adapted to the slow economic growth in recent years, increased emphasis has been placed on the cost effective use of social security funds. Some industrialized countries have restructured benefit provisions and reallocated resources among programs and beneficiaries to target benefits for specific groups. In the developing nations, the introduction of additional programs and expanded benefits continued on a limited scale amidst widespread concern about maintaining the real value of benefits after years of high inflation.     

Overview of the Office of Research, Statistics, and International Policy functions

Research and statistics have been an integral part of social security program development and administration since the program's beginning. The Office of Research, Statistics, and International Policy (ORSIP) is responsible for developing and disseminating information on the effects of programs operated by the Social Security Administration (SSA) and the interactions among these programs, other tax and transfer programs, and economic, social, and demographic forces. This mission is carried out by collecting and tabulating statistics and by conducting policy research and legislative impact analyses. ORSIP also provides technical assistance to other SSA components. In this overview, each of those functions is outlined and major initiatives to carry out the office's primary objectives for fiscal year 1986 are described.     

Social security: a program and policy history

Many of the federal and state programs that provide income security to U.S. families have their roots in the Social Security Act (the Act) of 1935. This Act provided for unemployment insurance, old-age insurance, and means-tested welfare programs. The Great Depression was clearly a catalyst for the Social Security Act of 1935, and some of its provisions--notably the means-tested programs--were intended to offer immediate relief to families. However, the old-age insurance program-the precursor to today's Old-Age, Survivors, and Disability Insurance, or Social Security, program-was not designed specifically to deal with the economic crisis of that era. Indeed, monthly benefit payments, under the original Act, were not scheduled to begin until 1942. In addition, from the beginning, the Social Security program has embodied social insurance principles that were widely discussed even before the onset of the Great Depression. The first four decades of the Social Security program were, in general, ones of expansion. In fact, the program was expanded even before it became truly operational. In 1939, amendments added child, spouse, and survivor benefits to the retirement benefits authorized by the 1935 Act. Those amendments also allowed for monthly benefits to begin in 1940. Although the program was not changed substantially during the war years and the initial postwar period, the 1950s were a transformational decade in the program's history: benefit amounts were increased substantially, coverage under the program became close to universal, and a new disability insurance benefit was offered. The 1960s witnessed additional growth in Social Security, but the most important development in social insurance occurred in health insurance, with the creation of the Medicare program in 1965. Legislative actions in the 1970s had profound effects on the Social Security program and, indeed, set the stage for many of today's reform debates. Large benefit increases, a new benefit formula that was erroneously generous, and other changes in the early 1970s created a situation in which annual program costs, as a share of gross domestic product, increased during a 12-year period from about 3 percent to 5 percent. In 1977, amendments to the Act corrected the flawed benefit formula and made other changes in the financing of the system to shore up the program. Thus, the 1970s represent a watershed in the program's history-program growth gave way to increasing concerns about the program's finances. Those concerns were reflected in the amendments to the Act in 1983, which were the last major changes to the program. These amendments, based largely on recommendations from a commission chaired by Alan Greenspan, adjusted benefits and taxes to address pressing near-term financing problems faced by the system. Although the Greenspan Commission focused to a large extent on short-range issues, the resulting reforms have generated large surpluses in the program and the buildup of a substantial trust fund. However, the looming retirement of the baby boomers and several other demographic factors will, according to projections, result in the exhaustion of the trust fund by 2042.     

Social security trends and developments in industrialized countries

In the industrialized countries, there has been much discussion on the short- and long-range financing problems of their social security programs. Prolonged unfavorable economic conditions triggered by the oil price shocks of the 1970's and negative demographic trends have caused many of these countries to adapt their social security programs in an effort to maintain financial stability. System modifications that have occurred abroad over the past 10 years have centered primarily on changes in financing, adjustments for inflation, measures to slow down increases in health care expenditures, and steps to promote the hiring of the unemployed. This article examines some of the significant changes that have taken place in the social security programs of the Western European countries, Australia, Canada, Israel, and Japan since 1971.     

Social Security: a financial appraisal for the median voter

Several explanations have been proposed for why voters continue to support unfunded social security systems. Browning (1975) suggests that the extremely large unfunded pension systems of most democracies depend on the existence of a voting majority composed of middle-aged and older people who fail to fully internalize the cost of financing the system. In fact, when voting, economically rational workers consider only their current and future contributions to the system and their expected pension benefits--not their past contributions, which they regard as sunk costs. If, for a majority of voters, the expected continuation return from social security exceeds the return from alternative assets, an unfunded social security system is politically sustainable. This article explores the validity of Browning's proposition by quantifying the returns that U.S. voters in presidential elections from 1964 to 1996 have obtained, or expect to obtain, from Social Security. Did "investments" in Social Security outperform alternative forms of investment, such as mutual funds or pension funds, for a majority of the voters? What can be expected for the future? The U.S. Social Security system redistributes income within age cohorts on the basis of sex, income, and marital status. To account for some of these features, the median voter is represented by a family unit whose members--a husband who accounts for 70 percent of household earnings and a wife who accounts for 30 percent--make joint economic and voting decisions. Thus, retirement and survival benefits paid out to the spouse of an insured worker can be included in the calculation of Social Security returns. Interval estimates of voters' family incomes from the U.S. Census Bureau were used to obtain the median voter's household earnings. The median voter's age is derived from the ages of those who voted in presidential elections, not from the ages of the entire electorate. The median voter's contributions to Social Security are the product of the joint employer/employee Old-Age and Survivors Insurance (OASI) tax rate and employee earnings. Data on actual contributions are available for median voters in the 1964 to 1976 elections; Social Security Administration (SSA) estimates are used for future tax rates and average wage growth rates. Data on actual old-age, retirement, and survivor benefits, as well as estimates of future benefits, are also available from SSA. Analysis of ex-post returns from "investing" in Social Security and from a buy-and-hold strategy applied to three alternative assets--the Standard & Poor's Composite Index (S&P), the Dow Jones Industrial Average (DJIA), and U.S. government bonds--shows surprising results. In 1964 and 1968, Social Security largely outperformed the other three assets. In 1972, Social Security and the stock market performed almost equally. In 1976, however, the median voter would have been better off in the stock market. The expected returns for median voters in later elections cannot be directly compared with realized returns from alternative assets. However, estimates range from 5.7 percent in 1984 to 7.0 percent in 1996 and thus compare favorably with average returns of 5.6 percent for S&P, 5.3 percent for DJIA, and 2.1 percent for government bonds over the 1964-1996 period. Although these findings must be taken with caution since they compare ex-post returns, they show that, despite a continuous reduction in profitability, Social Security still represents a safe, high-return asset for a majority of families.     

Stochastic models of the Social Security trust funds

Each year in March, the Board of Trustees of the Social Security trust funds reports on the current and projected financial condition of the Social Security programs. Those programs, which pay monthly benefits to retired workers and their families, to the survivors of deceased workers, and to disabled workers and their families, are financed through the Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds. In their 2003 report, the Trustees present, for the first time, results from a stochastic model of the combined OASDI trust funds. Stochastic modeling is an important new tool for Social Security policy analysis and offers the promise of valuable new insights into the financial status of the OASDI trust funds and the effects of policy changes. The results presented in this article demonstrate that several stochastic models deliver broadly consistent results even though they use very different approaches and assumptions. However, they also show that the variation in trust fund outcomes differs as the approach and assumptions are varied. Which approach and assumptions are best suited for Social Security policy analysis remains an open question. Further research is needed before the promise of stochastic modeling is fully realized. For example, neither parameter uncertainty nor variability in ultimate assumption values is recognized explicitly in the analyses. Despite this caveat, stochastic modeling results are already shedding new light on the range and distribution of trust fund outcomes that might occur in the future.     

Holes in the safety net,leaks in the roof: Changes in Canadian welfare policy and their implications for social housing programs 1

Abstract

This article surveys recent reforms to Canadian social policy at the national level and welfare programs at the provincial level to determine how social housing policy and programming are being affected. The survey considers Canada's Social Security Review consultation process, which played out over 1994 and 1995. The article outlines various concerns raised over the Canada Health and Social Transfer, a fundamental reform to intergovernmental fiscal and policy relations announced in the 1995 federal budget and elaborated on in the 1996 budget.

The transfer of administrative responsibility for federally funded social housing to provincial and territorial governments is discussed and recent developments in welfare programs across Canada are described, noting housing elements within these programs.     

Relationship between the retirement, disability, and unemployment insurance programs: the U.S. experience

This article was prepared initially for an international conference of social security program administrators and researchers. They examined the reasons for, and implications of, a recent trend in several European countries toward making it easier to qualify for retirement or disability benefits as a way of alleviating long-term unemployment. The article notes that the United States has not followed this trend. Instead, this country has continued to use temporary extensions of unemployment insurance benefits as a way to help the long-term unemployed during recessionary periods. Since the mid-1970's, the emphasis in retirement and disability insurance programs has been to strengthen the financial integrity of these programs rather than to expand eligibility. Described here are the progression of extended benefit provisions of unemployment insurance through the most recent recession, the historical development of early retirement features in the social security program, and the more recent attention that has been paid to the financing issues that have played a central role in legislation during the late 1970's and early 1980's. Unemployment experience and trends toward early retirement are examined, along with the role of public and private employee pension plans that supplement social security retirement benefits. Preliminary data from the Social Security Administration's New Beneficiary Survey show the prevalence of such pension coverage for recent retirees and the extent to which these pension benefits were claimed before normal retirement age.     

THE REAGAN ADMINISTRATION'S WELFARE RETRENCHMENT POLICY: TERMINATING SOCIAL SECURITY BENEFITS FOR THE DISABLED

Large numbers of the permanently and totally disabled have had benefits terminated since 1980 as a result of a determined effort towards that end by the Reagan administration. This is an example of the process by which a major change in political ethos is translated into important changes in welfare benefit entitlement rules. It is also interesting since it seems to be the first instance of a large scale conscientious attempt of the executive branch to reach into and narrow the basic entitlement policy of the Social Security Administration. This normally would be done through joint executive, congressional and legislative action. This article presents the policy background of these events and reviews and analyzes the data about their consequences.     

SSI: trends and changes, 1974-80

By the end of 1980, the Supplemental Security Income (SSI) program was making monthly cash assistance payments, averaging $170, to almost 4.2 million aged, blind, and disabled persons. When SSI payments began in January 1974, the number of recipients was 3.2 million and the average payment was $117. Since 1975, both SSI payments and Social Security benefits have been automatically adjusted each year to correspond with increases in the Consumer Price Index. A number of other trends in addition to growth can be discerned in the size of the population served, as well as in their categorical, geographic, and age distributions. This article discusses some of these trends and changes, using program data for the end of each calendar year through 1980. It also presents a brief summary of the program at the end of that period.     

Constitutional background to the Social Security Act of 1935

In June 1937, the Senate Judiciary Committee reported unfavorably on Roosevelt's Court-packing plan and the bill was effectively killed. In the same month, Justice Van Devanter retired and gave Roosevelt his first opportunity to make an appointment to the Supreme Court. Over the following 6 years, Roosevelt made seven more appointments to the Court, and in the years that followed the Court continued in the direction boldly advanced in the spring of 1937. A residual effect of the taxing-spending construction of the old-age insurance provisions of the Social Security Act of 1935 has been the Court's continued adherence to the view that social security programs consist of separate taxing and spending provisions and are not, constitutionally speaking, social insurance programs. The issue has arisen in both a due process context and an equal protection context. But it is unlikely that the decisions reached in these contexts would have been different had the old-age insurance program been drafted as an earned-benefits program pursuant to the commerce power. Of course, the Court's decisions in the social security cases represented a significant constitutional development in establishing the breadth of Congress' powers to tax and spend for the general welfare. The decisions not only cleared the way for other general welfare programs, but more fundamentally provided the Federal Government with the substantive power and institutional flexibility to respond to the changing needs of the Nation.     

Workers' compensation: 1980-84 benchmark revisions

The first workers' compensation program was introduced 80 years ago. Its purpose was to compensate occupationally injured workers and their families for lost wages and medical expenses from job-related injury, regardless of fault. Today, each of the State and Federal programs that provides coverage to more than 86 percent of the work force uses a combination of private insurance, State or Federal funds, and self-insurance to meet its benefit obligations. The workers' compensation program is of continuing interest to the Social Security Administration (SSA) for several reasons. Since 1965, Social Security Disability Insurance benefits have been subject to reduction if such benefits, when combined with those provided under workers' compensation laws, exceed 80 percent of the worker's earnings. Because the two programs have gaps in protection as well as duplication in coverage, a periodic review of the workers' compensation program is necessary. In addition, SSA administers Part B of the Black Lung program--established to provide income-maintenance protection to coal miners disabled by pneumoconiosis--to about 1 million beneficiaries whose claims were filed before July 1973. This article provides revised benchmark data on the workers' compensation programs and presents a review of program operations during the early 1980's.     

Econometric models and the study of the economic effects of Social Security

This article provides a relatively nontechnical discussion of previously published research on the use of econometric models in the study of the economic effects of social security. It illustrates the role of econometric model building by focusing on three major applications: forecasting, policy simulation, and hypothesis testing. A series of three macroeconomic examples serves to emphasize that the development and use of such models puts the focus of the analysis on the underlying economic structure. The first example presents a program-specific model of the Social Security system, the second a large-scale model of the U.S. economy, and the third a single-equation analysis of a specific issue.     

Mortality reporting in SSA linked data: preliminary results

The earnings and benefit data of the Social Security Administration represent a fairly large and balanced sample of present and past wage earners nationwide. Since the incentives for reporting deaths to the Social Security Administration mean that deaths are reported as a matter of course, this data base serves as an interesting prospect for examining problems of differential mortality. Variables available include age, race, sex, industry, and place of employment. To check on the coverage and content differences between social security and death certificate data, a sample study is being undertaken that links the two sources for 1975 decedents. This article provides a preliminary examination of the differences between the presumably complete frame of death certificates and the social security record data. Related efforts now in progress to improve available information for use in further mortality research are also discussed briefly.     

Workers' compensation, Social Security Disability Insurance, and the offset: a fact sheet

This article offers a brief summary of the workers' compensation and Social Security Disability Insurance programs. Information highlighted includes the differences between the two programs' types and terms of coverage. It compares the differing patterns in workers' compensation and Social Security disability benefits as a percentage of wages over the past few decades and considers the potential causes for such trends. The article also explains the offset provision included in the 1965 Social Security Amendments, the intention behind the offset, and how and when offsets are applied.     

Workers' compensation: 1984-88 benchmark revisions.

About 93.1 million workers were covered under workers' compensation laws in 1988--an increase of 11 percent from the 1984 total. Benefit amounts totaled $30.7 billion--an increase of about 56 percent since 1984. Of the total payments made under the workers' compensation program, $17.6 billion went to disabled workers, $1.6 billion to their survivors, and $11.5 billion for medical care. The Social Security Administration (SSA) is interested in measuring economic security in the United States, and workers' compensation plays a large role in that measurement. This article represents one part of our overall effort to determine the roles the various income-maintenance programs play in helping citizens of the United States achieve economic security. The figures presented here provide readers with an opportunity to review workers' compensation program operations during much of the 1980's. Workers' compensation is also important to SSA because that program is directly related to the Social Security Disability Insurance program. Since 1965, Social Security disability benefits have been subject to reduction if the beneficiary also receives workers' compensation and the combined benefits exceed 80 percent of previous earnings. In addition, SSA has been directly involved in providing income maintenance for disability from work-related diseases since 1969 when the Federal Black Lung benefits program was established.     

Recent trends in workers' compensation

Workers' compensation provides cash benefits and medical care to employees who are injured on the job and survivor benefits to the dependents of workers whose deaths result from work-related incidents. Workers' compensation programs in the 50 states and the District of Columbia and federal programs together paid $56.0 billion in medical and cash benefits in 2004, an increase of 2.3 percent over 2003 payments. Of the total, $26.1 billion was for medical care and $29.9 billion was for cash benefits. Employers' costs for workers' compensation in 2004 were $87.4 billion, an increase of 7.0 percent over 2003 spending. Workers' compensation programs and spending vary greatly from state to state. As a source of support for disabled workers, workers' compensation is currently surpassed in size only by Social Security Disability Insurance (DI), which covers impairments of any cause that are significant, long-term impediments to work. Although most recipients of workers' compensation recover and return to work, those with lasting impairments may become eligible for DI benefits, subject to an offset to avoid excessive wage replacement from both programs.     

The new supplemental security income—Implications for other benefit programs

Supplemental Security Income (SSI), a federal assistance program for the needy aged, blind and disabled, replaced the old federal-state welfare programs in January 1974. The enactment of this income floor, following a decade of revolutionary growth in aid to these three groups, may precipitate further program reform. First, the VA pension program aiding a beneficiary group similar to that of SSI, could be merged with SSI into a single federal program. Second, SSI may mark a turning point in the development of the social security system. A federally-administered income floor for the poor who are elderly or disabled can relieve social security of the welfare elements built into that system in an earlier period, allowing its original function of wage-replacement to be improved. A reorientation of social security vis-à-vis SSI would also allow a more equitable treatment of persons covered under one or both programs.