The Corner

Social Security, Productivity, Fertility

People concentrate too much on the fiscal side of the Social Security problem. But it’s worth noting that higher productivity won’t solve it. If higher productivity translates into higher wages, then it means higher benefits paid out of the program as well as higher revenues paid in. (Benefits are tied to wages.) So the problem is just pushed into the future. Bringing in more immigrants, or having more babies, similarly pushes the problem into the future. The structural imbalance between payout and pay-in rates remains the same.

To the extent that Social Security allows people to free-ride on other people’s having children, I would favor payroll-tax cuts based on the number of kids people have. But there is no substitute for cutting future benefit levels. (Ideally, this would be coupled with private accounts.)

Exit mobile version