How Social Security redistributes money from men to women
By Suzy Khimm,
Associated Press Social Security benefits are doled out according to a progressive formula, meaning that lower earners receive a bigger fraction of their lifetime earnings than higher earners in an attempt to address income inequality. But a new study shows that the wage gap between men and women wipes out a lot of that redistribution when you look at benefits received per household, rather than per individual. In other words, the gender wage gap makes Social Security benefit system a lot less progressive than it might seem, essentially redistributing funds from higher-earning men to lower-earning women. Here’s what Alan L. Gustman, Thomas L. Steinmeier and Nahid Tabatabai say in their new National Bureau of Economic Research working paper:
Studies using data from the early 1990s suggested that while the progressive Social Security benefit formula succeeded in redistributing benefits from individuals with high earnings to individuals with low earnings, it was much less successful in redistributing benefits from households with high earnings to households with low earnings. Wives often earned much less than their husbands. As a result, much of the redistribution at the individual level was effectively from high earning husbands to their own lower earning wives. In addition, spouse and survivor benefits accrue disproportionately to women from high income households. Both factors mitigate redistribution at the household level.
The researchers then tried to compare these outcomes from the 1990s with a group born 12 years later, to see whether growth in women’s workforce participation and earnings would make a difference in redistribution on the household level. There was some improvement as a result, but the basic trend persisted: The gender gap in earnings meant that Social Security still proved better at redistributing benefits between individuals — effectively from men to women — than reducing inequality between rich and poor households.