The Social Security Trust Fund report has been released. One of its more telling charts was of the trend in Social Security revenue. Social Security revenue comes from a tax on the wages of earners, paid by both employees and employers. So, essentially it tracks the level of employment.
Based on the simple trend of revenues from 1990 to 2007, just before the Great Recession started, 2012 revenue would have been $899.4 billion; instead, it was $840 billion. That gap means less money to build up the Social Security Trust Fund than expected. The trustees do not break down the revenue by the age of workers, but based on the dramatically lower employment experience of young workers, the bulk of that gap reflects the lost wages of young people.
That gap also represents another side to the young worker crisis. Of course, a smaller Social Security Trust Fund is a crisis for all of us. But, the gap in earnings of young people also reflects they are not building up the wage record on which their Social Security benefits will be based.
This is tangible, easy to see costs of high unemployment for young people. Unfortunately, it is money they will not make up easily. Evidence is that entering the labor market in times of high unemployment permanently lowers the earnings of workers. The downturn of the 1980s left permanent scars on the earnings of those who graduated into the labor market between 1981 and 1983. The only way for the current young workers to make up those lost earnings will be to work longer-make it up at the ends of their working lives.
But, if America would return to getting to full employment faster, young workers would benefit greatly. And, Social Security would benefit. This is the true inter-generational struggle. The current generation of politicians is ignoring the immediate and long-term needs of young workers.
Now, the perverse twist is that the debate is on cutting the Social Security benefits of future retirees-meaning the current set of young workers who are suffering the most from high unemployment. The same set of young people who are not building up the savings needed to help them when they are old.
Here, the Social Security Trust Fund report is helpful. The report says that Social Security is currently taking in more money than it is paying out-revenue from current taxes and interest on the Trust Fund are more than current outlays to pay benefits. So, the Trust fund is continuing to grow. The Trust Fund is large enough to pay all promised benefits until 2033. That means well past when the first wave of the Baby Boomers-those born before 1949-will be finished receiving benefits-more crudely, when they are dead.
This means the current jargon on intergenerational transfer is a false debate; making it appear the AARP is trying to squeeze money out of young workers. Instead, those who are fighting to protect Social Security-like the National Committee to Preserve Social Security and Medicare-are really fighting for today’s young workers. Protecting Social Security is making sure that young workers do not have to pay for the nearsightedness of austerity budgets that cheat the young out of policy debates on generating jobs, and then make young workers pay in retirement because of that same world view.
What the Organization for Economic Cooperation and Development clearly showed last week in its economic report is that the social safety nets of the modern states are working to save the day. Why would we deny young workers a fully functioning set of proven safety nets when they get to be old?
In the meantime, let’s move on to debating getting Americans to work. Politicians need to show how their plan creates jobs now, not in some distant future. Young people need the jobs, and all of us need Social Security.
William Spriggs serves as Chief Economist to the AFL-CIO and is a professor in, and former chair of the Department of Economics at Howard University. Bill is also former assistant secretary for the Office of Policy at the United States Department of Labor.