Panel on Social Security and COVID-19 at NBER Summer Institute
The 2020 NBER Summer Institute's Economics of Social Security meeting featured a panel discussion on the implications of the COVID-19 pandemic for Social Security in the US. NBER President James Poterba introduced the panel by noting that COVID-19 may affect Social Security in many ways, including effects on the economy, health, and mortality, while also acknowledging the current early state of research with respect to the pandemic and its long-term effects.
James Stock (Harvard University and NBER) kicked off the panel with a high-level summary of the state of economic research on COVID-19. There is a consensus in the literature (NBER Working Papers 27613, 27431, 27693, 27432, 27027, 27235, 27280, 27061, and 27099) that the low levels of economic activity associated with the pandemic are largely attributable to consumers' response to the threat of infection, not the results of government business-closure orders. The current decline in cases and deaths in the Northeast alongside an increase in the South and Southwest paint a clear picture that the dynamics of the pandemic are still evolving. In some economic-epidemiologic models, without a vaccine "smart containment" policies like requiring masks, social distancing, and protections for the elderly may affect virus deaths more than broader economic lockdown policies. Stock also noted that in the COVID-19 economic downturn so far, macroeconomic aggregates such as industrial production and payroll have co-moved in a way that is "remarkably consistent with historical business cycle patterns," indicating that "if the COVID-public health situation does not improve ... we would expect to see continued slippage into longer-term unemployment."
Steve Goss, Chief Actuary of the Social Security Administration (SSA), and Karen Glenn, Deputy Chief Actuary of the Social Security Administration, jointly presented SSA's current projections for economic indicators out to 2025, reflecting the new COVID-19 environment. They also discussed how they project that COVID-19-related shifts in mortality, fertility, and earnings may affect the financial status of the SSA trust funds. Economic forecasts from various sources such as Moody's, IHS, and the Congressional Budget Office vary widely but find consensus in their projections that it will be years before GDP, employment, earnings, and payroll tax revenue return to their pre-COVID levels. Compared to prior years, mortality rates in 2020 are elevated. Fertility rates have been historically low in recent years, with a prior expectation of a rebound in rates over the next decade potentially now in doubt as recessions tend to depress fertility rates. Effects of the pandemic on immigration, with forces moving in competing directions, are not clear at this time. While the national average wage index for 2020 will likely decline, potentially lowering Social Security benefits for those who become "newly eligible" in 2022, two new legislative bills, S. 4180 and H.R. 7499, have been introduced to address these effects. So far, there is no evidence that a COVID-induced recession is causing or will cause workers to claim retirement benefits earlier than otherwise, nor is there an observed increase in Disability Insurance applications. Regardless, it is clear that there are competing effects on the size of the beneficiary population. Pre-COVID, the OASDI reserves were projected to be depleted in 2035. In April, SSA projections assumed a 15 percent reduction in earnings and payroll tax for one or two years, and then a full recovery. In this scenario, trust fund reserve depletion shifted forward from early 2035 to mid- or early 2034. "If instead, closure due to the pandemic extends through 2021, or if there is a permanent reduction in the level of economic activity, then negative effects on the actuarial status could be substantially larger," Goss noted.
Louise Sheiner (The Brookings Institution) wrapped up the panel by reflecting on how COVID-19 could change some of the economic assumptions that underlie long-term Social Security projections. She noted that the long-run focus on fiscal projections for the trust funds, which requires using long-run data trends, may miss some near-term effects of COVID-19. As the trusts are expected to be depleted by 2035 in pre-COVID projections, "getting the next 10-15 years right is the most important part of the projection." The labor share of GDP has been on a long-term downward trend, with prior expectations that it will revert to the mean over the coming decade, but "with the high level of the stock market and unemployment, it is likely that share will stay lower, for longer." Similarly, productivity growth has been assumed to climb back to its long-run average over the next five years, but recent COVID effects are likely to dampen this expectation. Real interest rates have been declining steadily since the mid-1980s; a recent downward revision of the long term interest rate assumption by the SSA to 2.3 percent is likely reasonable for the long term, but in the short term, rising to that level from its current low — in light of recent COVID effects — may take considerably longer than is currently projected.