Unemployment Rates Affect Social Security

April 16, 2002 (PLANSPONSOR.com)-Research by the Employee Benefits Research Institute (EBRI) shows that while Social Security's funding has improved since 1997, it could be affected by the recent increase in the unemployment rate.

In the April edition of its newsletter, EBRI noted that the strong economies of the late 1990s and 2000 helped to boost the Social Security program’s 75-year actuarial balance. However, the recent slowdown and the increases in unemployment before and after September 11 could deter this improvement.

EBRI notes that an increase in the unemployment rate actually has a negative impact on the Social Security actuarial balance while a decrease in the rate would have a positive impact. 

In particular, a half a percentage point change in the unemployment rate can lead to a change of between 0.06 and 0.07 percentage points in the actuarial balance.  For example, if the unemployment rate changed from 5.5% to 5.0%, the actuarial balance would improve from -1.86% of taxable payroll to -1.79%, while an increase to 6.0% of the unemployment rate would cause the actuarial balance to worsen to -1.92%.

The organization also cited recent research that indicates that a significant increase in the number of immigrants with moderate to high job skills in their early to prime working years could have a considerable impact on the Social Security program and would reduce the need to increase taxes or cut benefits.

At the same time, the EBRI noted that when immigration increases, a significant improvement in the Social Security program’s funding occurs. Also, an influx of immigrants under 30 would have a positive impact because these individuals would spend most of their working years under the system before they would qualify for benefits.