The following article by Valerie Rhea originally appeared on Quora. Valerie is a thirty-something PhD economist, former military pilot, with a law degree.
Would More Jobs Help Social Security?
Yes, higher employment (and higher wages, by the way) results in more inflows to the Social Security system. In 2024, the SSA spent about $60 billion more than it took in via payroll taxes. If US payrolls increased by about $500 billion – that’s about 1.75% of GDP – then instead of operating at a deficit, Social Security would have approximately broken even.
To realize $500 billion in increased payrolls, roughly 6 million average-paying jobs would need to be added. If we forget about population growth for a moment, that means expanding the US workforce participation rate by about 4% would do the trick. That would take us to a workforce participation rate of about 66%—levels last seen during the Bush administration.
Unfortunately, keeping Social Security solvent becomes increasingly difficult to keep up with because of the country’s demographics. Right now, an estimated 2.4 workers pay into Social Security for every person receiving benefits, down from about five workers per beneficiary in 1960. By 2050, the ratio is expected to fall below two workers per beneficiary. Further, during any period of inflation, COLA adjustments and so on force the cost of benefits to grow rapidly. Although every little bit helps, America just isn’t likely to grow our workforce fast enough to keep up with longer lifespans.
When the Social Security program was first passed, the retirement age was 65 and the mean life expectancy in the US was 61. The average worker would pay into Social Security all of his working life but only receive benefits for a short time. Today, this is quite different…benefits can begin at any age from 62 on, and US life expectancies are about 80 years. The average participant in Social Security can thus receive benefits for 10–20 years in many cases.
So while higher employment levels help Social Security, alone, they will probably not be sufficient to keep the program solvent. Focusing on waste/fraud/abuse in the system is important too, and if we want to continue the program into the future (which is a separate debate…Social Security tends to be a bad deal for workers), we will need to look at a mix of administrative streamlining, tax increases, benefit cuts, or new investment options for the Social Security trusts that return better results than the current 2.2% earned by Social Security.
This last point is important. The average US union pension fund has returned about 7% since 1960. The average university endowment fund returned over 9% during that same timeframe. Social Security, because it is limited to investing in US Treasury debt exclusively, sees a relatively poor return by comparison. To illustrate the point, if the current Social Security trust could just realize 5% returns, the program would be solvent for the foreseeable future, and with some of the other improvements discussed here, there could even be funding to give retirees substantial benefit increases without bankrupting the system.
Further complicating the problem is our hyper-partisan politics. The last serious attempt to reform Social Security resulted in TV commercials showing Republican politicians literally pushing a wheelchair-bound Grandma off a cliff. Democrats haven’t offered a reform plan since the 1980s, and now, Republicans are so fearful of touching that “third rail of politics” that they don’t try either. I suppose both parties believe that when Social Security runs out of money to meet all its commitments in about eight years, they will be able to impose a more politically advantageous solution in the moment of crisis.
Saner minds need to prevail, but sadly, in our political climate, that seems nearly impossible.