Distributional Effects of Social Security: the Notch Issue Revisited

Abstract

This article provides the first empirical estimates of the effects of the Social Security Abstract benefit notch on lifetime benefits based on actual Social Security records, the 1988 Continuous Work History Sample. The authors'results show that the notch occurred in the context of a maturing social insurance system in which all early cohorts have received very high rates of return. As a group, the 1917-1921 notch cohorts could expect to receive roughly $500 billion (in 1988 dollars) more than if they were paid the same rate of return on their contnbutions that the Social Security system earns on its investedfunds.