How Does Differential Mortality Affect Social Security Finances and Progressivity? Working Paper 2005-05

Working Paper
May 1, 2005

Amy Rehder Harris, John Sabelhaus

The Congressional Budget Office Long-Term (CBOLT) model uses dynamic micro-simulation for a representative sample of the population to analyze the aggregate and distributional effects of Social Security policy. In the model, overall mortality rates by age and sex are calibrated to match Social Security Trustees projections, and differential mortality (the difference in death rates across socioeconomic groups) is introduced using a combination of disability-specific mortality and a technique for the non-disabled developed by Lillard and Panis (1999). In this paper, the question of how differential mortality affects Social Security finances and progressivity is approached through sensitivity analysis using CBOLT. The model is solved using a range of assumptions about differential mortality, and the impact on various outcomes is assessed. In contrast to inferences in several recent studies, the results here suggest that differential mortality does not play a significant role in determining progressivity or system finances. It is true that socioeconomic differentials in death rates work counter to Social Security’s statutory redistribution and make the system costs higher, but the effects are probably only of second-order significance.