Social Security and Education

Studies | Education | Social Security

No. 240
Wednesday, January 31, 2001
by Dr. Liqun Liu and Dr. Andrew J. Rettenmaier


Conclusion

The "investment" in Social Security has become progressively less attractive over time for all groups of workers. The results we present for single workers (with no dependents) and married workers (with nonworking spouses and dependent children) indicate the range of possible outcomes. The true average outcome falls within this range. However, in the future, fewer and fewer families will make it to retirement with only one earner.

"The 'investment' in Social Security has become progressively less attractive over time."

Regardless of marital status or dependents, it is costly for most workers to participate in Social Security. Groups with negative net present values lose. Except for near-retirees with the lowest levels of education, workers can expect to pay more into the system than they get out of it. For people with negative present values, Social Security represents a net tax on their lifetime earnings.

Further, Social Security's net tax has become larger over time for most family types and most education levels. This suggests that the system redistributes from younger to older generations. Also, for workers of any given age today, regardless of family type, the net tax is larger for those with the most education. Since education level is generally positively correlated with income, this demonstrates that Social Security also redistributes from individuals with high lifetime earnings to those with low lifetime earnings.

NOTE: Nothing written here should be construed as necessarily reflecting thet views of the National Center for Policy Analysis or as an attempt to aid or hinder the passage of any bill before Congress.


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