Evaluating the impact of social security.

• Author: Milligan, Kevin

Although pressing issues, from immigration to national security, can capture the attention of policymakers from year to year, the problems associated with the fiscal consequences of an aging population are always looming in the background. The eventual impact of Social Security and Medicare on the long-run budget in the United States is likely to be substantial. But, the problems facing other OECD countries are perhaps even more severe. Birth rates elsewhere are lower, meaning that fewer workers will be paying for the benefits of retirees. Moreover, the share of retirement benefits provided through the state is higher in many other OECD countries than in the United States. (1)

In light of these pressures, many countries already have implemented substantial reforms. Italy and Sweden are phasing in notional defined contribution plans to replace their traditional social security programs. Canada has a 140 billion dollar trust fund invested in a diversified portfolio of financial assets. Germany has lowered the public pension entitlement and encouraged the establishment of occupational pensions and individual savings plans. In the fall of 2010, France advanced the retirement age from 60 to 62 in the face of mass protests, joining the United States and other countries in a movement toward later benefit entitlement ages. Further reforms, both large and small, are under discussion in many other nations.

Over the past few years, I have participated in a number of research projects evaluating social security programs around the world. The broad goal of this work is a better understanding of the economic responses to the incentives embedded in public pension programs. Research on these issues can provide policymakers with some guidance as they face the demographic challenges of the future. Some of this work is undertaken through the NBER's International Social Security group, organized by Economics of Aging Program Director David A. Wise. It features the work of teams from twelve OECD countries, collaborating to produce comparable analyses that address important questions for the design and future of Social Security programs. To date, this project has produced four published volumes, with more on the way.

Here I describe work from two phases of the International Social Security project, as well as two other research projects related to retirement behavior.

Disability Insurance

The International Social Security project has focused recently on...