On Social Security by Jim McKeogh, June 1, 2000

In the May 22, 2000 issue of Business Week, there was an essay by Susan B. Garland titled "Making Social Security More Women-Friendly" which purports to describe how Social Security is skewed against women. There are four components to the argument.

• The average career for women spans 27 years while men average 39 years (women take time off to care for children and elderly parents).
  
• Women, on average, have lower earnings than men over their careers.
  
• Women sometimes have their spousal benefits reduced or eliminated due to divorce.
  
• A widow's benefits are reduced to between one-half and two-thirds of the combined benefits that were received when the husband was alive.

The first thing that struck me about the article was that the phenomena described were simply features of equitable plan design. People (not limited to female people, of course) who do not work as long or who work at lesser pay than others contribute less to the system--their employers contribute less, too--and consequently receive lesser benefits. In fact, Social Security gives larger benefits proportionally to those with lower average career earnings, as illustrated by the following table:

Based on the above, one might argue that Social Security discriminates in favor of women and, in general, in favor of those with lower career earnings.

But the second--and much more important --thing that struck me was that one could not even have a discussion about design features if those who want to change Social Security from a defined benefit plan to a defined contribution plan have their way. George W. Bush wants the process to begin by allocating some 2% of the total 12.4% tax to a private savings account.

An analysis of Bush's versus Al Gore's proposals for "fixing" Social Security is beyond the scope of this musing. But Social Security has always been a balancing act between individual equity and social adequacy. With a movement towards a defined contribution model the balance will shift dramatically towards individual equity and our children might never get to debate whether women (or the poor, or the disabled, or surviving spouses, or children of deceased insureds) should get a larger or smaller piece of the Social Security pie. The pie will come in individual servings and the size of each serving will be a function of what was paid in and the investment gains and losses thereon--no more and no less.

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