Modeling Lifetime Earnings Paths: Hypothetical Versus Actual Workers

Boettner Center for Pensions and Retirement Research Working Paper No. BWP2004-3

Michigan Retirement Research Center Research Paper No., WP 2004-074

38 Pages Posted: 22 Jun 2004

See all articles by Andrew Au

Andrew Au

University of Pennsylvania - The Wharton School

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; University of Pennsylvania - The Wharton School, Pension Research Council; National Bureau of Economic Research (NBER)

John W. R. Phillips

National Institutes on Aging

Date Written: 2004

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.

Suggested Citation

Au, Andrew and Mitchell, Olivia S. and Phillips, John W. R., Modeling Lifetime Earnings Paths: Hypothetical Versus Actual Workers (2004). Boettner Center for Pensions and Retirement Research Working Paper No. BWP2004-3; Michigan Retirement Research Center Research Paper No., WP 2004-074. Available at SSRN: https://ssrn.com/abstract=557137 or http://dx.doi.org/10.2139/ssrn.557137

Andrew Au

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Olivia S. Mitchell (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

University of Pennsylvania - The Wharton School, Pension Research Council ( email )

3302 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

John W. R. Phillips

National Institutes on Aging ( email )

Building 31, Room 5C27
31 Center Drive, MSC 2292
Bethesda, MD 20892
United States

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