Robots Stole My Pension: Modelling Labor Automation's Impact On Social Security Solvency
Open Access
Author:
Gersh, Aaron
Area of Honors:
Actuarial Science
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
Nan Zhu, Thesis Supervisor Steven L Putterman, Thesis Honors Advisor
Keywords:
Labor Automation Social Security Income Tax Retirement
Abstract:
There is an abundance of current literature theorizing the negative effects of a new wave of automation on employment, wage concentration, and the ability of governments to fund social insurance programs through the income tax. However, the issue has undeservedly been under prioritized by the Social Security Administration (SSA). This thesis aims to build a theoretical framework to quantify the externalities of labor automation on Social Security. Specifically, this thesis will first conduct an extensive literature review on OASI (Old Age and Survivors Insurance) assumptions and outlooks, as well as predictions on the potential magnitude of automation, and papers theorizing this phenomenon’s effects on a multitude of economic variables. In aggregating and conflating these writings, this thesis will then develop a stochastic model within a specific-factor economic framework. Doing so will create a never-before-made model that endogenizes labor market variables that subsequently effect both tax revenues and accrued liabilities for the OASI program.
The equilibrium tax rate will be solved under different automation-induced labor displacement scenarios to test whether the changing labor market conditions will have a negative impact on the solvency of OASI. This simulation will find, when using empirical data on automation as well as real social security data and assumptions for a single cohort of individuals, that automation increases the required tax rate to keep the program fully funded.
