Education, Earnings Inequality, and Future Social Security Benefits: A Microsimulation Analysis

TLDR: This paper used a Social Security Administration microsimulation model called Modeling Income in the Near Term to estimate the effect of different rates of wage growth by educational attainment on the future earnings and Social Security benefits of individuals born between 1965 and 1979, sometimes referred to as Generation X.

Abstract: This article explores how faster rates of wage growth for college graduates than for nongraduates could affect the Social Security benefits of future retirees. Using a Social Security Administration microsimulation model called Modeling Income in the Near Term, the authors estimate the effect of different rates of wage growth by educational attainment on the future earnings and Social Security benefits of individuals born between 1965 and 1979, sometimes referred to as “Generation X.” They find that for members of the 1965-1979 birth cohorts, different rates of wage growth by education would substantially increase the gap in annual earnings between college graduates and nongraduates, but that differences in Social Security benefits would increase by a smaller proportion, primarily because of Social Security’s progressive benefit formula.