Modeling Lifetime Earnings Paths: Hypothetical Versus Actual Workers
Boettner Center for Pensions and Retirement Research Working Paper No. BWP2004-3
38 Pages Posted: 22 Jun 2004
Date Written: 2004
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.
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