Part 2 – US Social Security System from an International Perspective

1. Part 2 – US Social Security System from an International Perspective • How similar or different is theSocial Security system to that of other developed countries? • How costly? • How generous? • How great are the financing challenges of aging?

2. International Labor OrganizationDefinition of Social Security • Social Security the protection that a society provides its members, through a series of public measures, against -- • Loss of work-related income (or insufficient income), caused by • sickness, • disability, • maternity, • employment injury, • unemployment, • old age, or • death of a family breadwinner; • Lack of access to health care, because it is unavailable or unaffordable; and • Insufficient support for childrearing.

3. II. What stands out about US social security? • Missing elements: • Health insurance • Sickness benefits • Family benefits

4. 2. Relatively low benefit levels • ILO minimum standard: 40% of prior wages after 30 years of contributions • Average benefit (as a percentage of average) wage: • US - 37% • Belgium - 45% • France - 63% • Sweden - 49% • Austria - 55% • UK - 35%

5. 3. Relatively high retirement age • 67 - Spain • 66 - US, Ireland • 65 - Austria, Belgium, Finland, Germany, Greece, Italy, Netherlands, Portugal • 61 - Malta • 62 - Slovakia, France • 63 - Cyprus, Estonia, Slovenia • Legislated increases: US, Germ, Greece (67), Italy & Ireland(69), Estonia, Slovenia (65).

6. 4. Relatively low cost • Social Security (pension) expenditures as a % of GDP • US - 5% • European Union average - 11.8%

7. 5. Relatively small cost increase on the horizon • Expenditures as a % of GDP • US - 5%, rising to 6% in 2060 • European Union - 11.8%, rising to 14.2% in 2060

8. 6. Low costs of administration • Administrative costs as a % of total benefit expenditures, 8 countries • US - 1.3 • Austria - 3.2 • Belgium - 1.7 • Canada - 1.3 • Germany - 2.0 • Italy - 4 • Japan - 2.7 • Netherlands - 2.3

9. BUT .... • It all depends on ... • Fertility • Employment • Immigration • Productivity • Inequality

10. Declining fertility rates • Replacement rate = 2.1 children per woman • 2007 - US 2.1, EU l.54, France 1.9 • 2009 - US 2.0, France 1.9, EU 1.59 • 2011 - US 1.89, France 2.0

11. Rising unemployment United States (Jan. figure) • 2002 - 6.0% • 2003 - 5.3% • 2004 - 5.4% • 2005 - 4.9% • 2006 - 4.9% • 2007 - 5.0% • 2008 - 7.3% • 2009 - 9.9% • 2010 - 9.4% • 2011 - 8.5% • 2012 – 8.3% • 2012 – 7.9%

12. US versus Europe • EU 27, 10.7% • EU 17, 11.7% • US, 8.3% • But .... • Germany 5.4% • Netherlands 5.5% • Austria 4.2%

13. Immigration • Countries with higher population growth are often the most successfully economically • Illegal migration, a plus for social security • Steve Goss, SSA Chief Actuary: by 2007, the Social Security Trust Fund has received a net benefit of somewhere between $120 billion and $240 billion from unauthorized immigrants.

14. Productivity • Changes in living standards due to Aging and productivity, 2012-2035 (Dean Baker, New America Foundation) • Aging - 8.5% • Productivity - 1% annual growth + 26% • Productivity - 1.5% annual growth + 41%

15. Inequality • Raising the social security wage cap to its previous level, covering 90% of wages, would eliminate about one third of long-term social security shortfall.

16. To sum up, • Compared to other developed countries, the financing challenge of theUSSocial Security system looks manageable. • Low cost • Efficient administration • Small demographic challenge • BUT …. It all depends on the future economy