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Modeling Lifetime Earnings Paths: Hypothetical versus Actual Workers
by Andrew Au, Olivia S. Mitchell and John W. R. Phillips
WP 2004-074
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To assess the distributional effects of social security reform proposals, it is essential to
have good information on real-world workers’ lifetime earnings trajectories. Until
recently, however, policymakers have relied on hypothetical earnings profiles for policy
analysis. We use actual lifetime earnings data from the Health and Retirement Study
(HRS) to compare actual workers’ covered earnings profiles to these hypothetical
profiles. We show that the hypothetical profiles do not track earnings patterns of current
retirees; thus lifetime pay levels are much higher than for most HRS workers. Therefore,
using hypothetical profiles could misrepresent benefits paid and taxes collected under
such reforms.
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