Validating Longitudinal Earnings in Dynamic Microsimulation Models: The Role of Outliers

Abstract

Rapid growth in the earnings of the highest earners over the past two and a half decades has contributed to strains on Social Security's finances and made projecting lifetime earnings on a year-by-year basis -already a complicated technical problem -even more challenging. This project uses various descriptive techniques and high-quality administrative earnings data matched to household surveys to explore related questions about the changing wage distribution.We first describe the characteristics of high earners, both at a point in time and over longer periods (from 1983 through 2010). We then evaluate how well SSA's MINT7 dynamic microsimulation model projects inequality in the earnings distribution and the long-term characteristics of earnings paths.

Policy Options to Reduce the Black‐White Gap in Retirement Security

“…About onefifth of Social Security's long-range financing shortfall would be eliminated, according to the actuaries, if the tax-able maximum were increased to cover 90 percent of covered earnings and benefit credits were provided on those contributions. These proposals would not raise taxes on many Black workers because they are much less likely than White workers to earn more than the existing taxable maximum (Favreault & Haaga, 2013).…”