Securing Family Benefits: Social Security Reform in the 21st Century

Pamela Herd, University of Michigan

For over 20 years scholars and politicians have proposed altering Social Security family benefits. Proponents of reform point out that the current benefit structure is most advantageous for married women who do little paid work. The typical American family, however, no longer represents this Ozzie and Harriet model. More mothers are working and fewer of them are getting or remaining married. The retreat from marriage is particularly pronounced among black women. Further, scholars and policy analysts have challenged the progressivity of family benefits showing that wealthier white families benefit the most from them (Harrington Meyer 1996; Gustman and Steinmeier 2000). Consequently, how should Social Security family benefits be altered to account for demographic changes in the American family in addition to improving the program’s progressivity? Eligibility for current family benefits is based on either being currently married or formerly married to a covered worker. To be eligible for worker benefits one must have ten eligible years of earnings. Spouses of covered workers are eligible for 50 percent of his or her benefit. Widows and widowers are eligible for 100 percent of the original worker benefit. Divorced individuals are also eligible for spousal and widow benefits, but must have had a minimum ten year marriage to qualify. While both men and women are eligible for family benefits, in practice 98 percent of beneficiaries are women. Feminists concerned about the impact of these benefits on gender inequality have been among the most vocal proponents of reform (Abramovitz 1996; Crittenden 2001; Harrington Meyer 1996; Hartmann and Hill 1999). They argue that current family benefits reinforce a patriarchal family structure by encouraging women’s economic dependence upon men. Consequently, their proposals emphasize ensuring women’s economic security independent of marriage. One proposal entails creating a care credit that rewards women for raising children whether they are married or not. Specifically, spousal benefits would be removed, but the worker benefit would be subsidized by imputing wages for up to 5 or 9 low earnings years for parents of one or more children respectively. The other proposal entails raising the spousal benefit for divorced women from 50 percent of her former spouses benefit to 75 percent. The hope is that this would reduce poverty among older divorced women. Both proposals help offset the negative economic consequences that women face when they are not married. Those concerned specifically with poverty, or class-based inequities argue for the institution of a meaningful minimum benefit (GAO 1996; U.S. DHEW 1979). Moreover, most proposals to partially privatize the system include a minimum benefit proposal as a safety net. They emphasize that current family benefits disproportionately benefit upper-income families (Steurle et al. 1999). Welfare state scholars concerned with ways the state impacts class inequalities tend to support two-tiered old age pension systems, which have a flat minimum benefit and an earnings related second tier. While benefits would still be calculated based on previous earnings, every American would be guaranteed a minimum benefit of $545 a month. This structure has been most effective at lowering rates of both poverty and inequality in other industrialized democratic countries (Korpi and Palme 1998). Further, some feminists argue that there is far more inequality among women than between men and women, thus policies should focus on eradicating class based inequality. This study evaluates the impact of these proposals on gender and class based inequalities in Social Security’s benefit distribution (or benefit progressivity) as well as the appropriateness of the family benefit structure when accounting for demographic changes. To do this, I use the 1992 Health and Retirement Study (HRS) with merged Social Security earnings’ data. This nationally representative sample of those aged 51 to 61 is considered the most complete data set on Americans approaching retirement. Further, these data provides the most comprehensive data to conduct a policy simulation of how alterations to family benefits would alter the distribution of benefits among women. In particular, the data include earnings records for both individuals in married couples. This information is critical in calculating spousal and widow benefits. There are two problems, however, with these data. The first is missing earnings information on spouses of both widows and divorced women. Consequently, I imputed spouses by matching ‘donor’ spouses based on education, type of marital dissolution, age at marriage, length of marriage, and race. Then, to both reduce and account for the error associated with these imputations I used a multiple imputation approach (Rubin 1987). The second issue involved projecting earnings for individuals who had not reached age 61 by the time of the survey. This information is necessary to calculate the monthly worker benefit for eligibility at age 62. To fill in earnings histories I draw on self-reported earnings in later waves of HRS as well as impute earnings based on individuals’ previous earnings histories (Mitchell et al. 2000). Each missing earning year is based on average of the previous five with most recent weighted the most heavily. Most individuals, however, had self reported earnings in later waves that offset the error in these imputations. To analyze how these reforms to changing family structures, the final step of data preparation was to develop a projection method that could account for the impact of demographic changes related to women’s work and family on each reform. I use a nonparametric cohort “splicing” approach. To avoid the complexities associated with a full-blown microsimulation model, I adopt a cell re-weighting approach to account for demographic changes between cohorts. I re-weight present beneficiaries, who fare particularly poorly or well under the varying reforms, based upon the population composition of the younger women. The method that I use to do this is not meant to be exact, but illustrative of how changing demographic trends would influence the effect of these reforms on a younger cohort of women. To evaluate each of the reforms, the baseline for comparison is the respondents’ present benefit. Each recipient’s current benefit may be raised, covered, or left unchanged by a particular reform proposal, and the extent of any such change can be measured in dollar terms. Because of significant numbers of beneficiaries with no change in benefit, thus creating zeros, I use an altered two-part model to investigate correlates of benefit changes under each reform proposal (Manning et al. 1987). The first part is a probit model to determine whether benefits are changed or unchanged. Then an OLS model identifies the characteristics most strongly associated with whether one receives a greater or lesser benefit dependent upon the reform. Independent variables will include demographic, family and work related variables. The expected findings from this study are that removing spousal benefits and implementing care credits or a minimum benefit are the most effective approaches to reshape benefits to mirror the demographic changes in family composition as well as reduce gender and class inequities in benefit distribution. To reduce both gender and class-based inequities requires eliminating marital status as a means of eligibility. This also reflects the demographic reality of the retreat from marriage. Both of these reforms shift women onto the worker benefit, which reflects the increase in women’s labor market participation, but subsidizes the benefit in a way that offsets women’s lower earnings. Overall, however, I expect that a minimum benefit improves the program’s progressivity more dramatically than would care credits. Focusing exclusively on patterns of gender inequality undermines the ability to address issues of class and race inequality among women. REFERENCES Abramovitz, Mimi. 1996. 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