Modeling Lifetime Earnings Paths: Hypothetical versus Actual Workers

Andrew Au, Olivia Mitchell and John W. R. Phillips
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Andrew Au: University of Pennsylvania
John W. R. Phillips: Social Security Administration

Working Papers from University of Michigan, Michigan Retirement Research Center

Abstract: To assess the distributional effects of social security reform proposals, it is essential to have good information on real-world workers’ lifetime earnings trajectories. Until recently, however, policymakers have relied on hypothetical earnings profiles for policy analysis. We use actual lifetime earnings data from the Health and Retirement Study (HRS) to compare actual workers’ covered earnings profiles to these hypothetical profiles. We show that the hypothetical profiles do not track earnings patterns of current retirees; thus lifetime pay levels are much higher than for most HRS workers. Therefore, using hypothetical profiles could misrepresent benefits paid and taxes collected under such reforms.

Date: 2004-03
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