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How Are Social Security Benefits Paid Out? Ida May is a striking example of the first generation of Social Security beneficiaries who were the big winners.




Individuals can receive their PIA starting at age 65, which is the Full Benefits Age (FBA). As a result of 1983 legislation (discussed in more detail later in this chapter), the FBA is currently slated to rise to age 67 for those born in 1960 or later.8 It is possible to receive benefits as early as age 62, the Early Entitlement Age (EEA). For each year of benefits claimed before age 65, however, there is an actuarial reduction in benefits of 6.67% per year so that individuals who claim their benefits at age 62 receive 20% less in benefits than those who claim benefits at age 65. This is called an “actuarial” reduction because it is designed to compensate for the fact that individuals who take benefits early receive them for more years.

The very first beneficiary of Social Security was Ida May Fuller. Ida May worked for only three years after the establishment of the Social Security system, and paid a total of $24.75 in Social Security taxes. Ida May went on to live for 35 more years, dying at age 100 in 1975. Over those 35 years, she collected a total of $22,888.92 in Social Security benefits. Ida May is a striking example of the first generation of Social Security beneficiaries who were the big winners under this new social program.

1 – a 2 – c 3 – b 4 – e 5 – a 6 – a 7 – e 8 – b 9 – b 10 – c

 

3.1. Explain the Crowd -Out Problem in Education. How would this "solve" with the Educational Vouchers? How vouchers will lead to excessive school specialization or to Segregation?

An important problem with the system of public education provision is that it may crowd out private education provision. Public education provision may crowd out private education provision. Perhaps providing a fixed amount of public education could lower educational attainment (both amount and quality) by leading people to choice lower-quality public schools over higher-quality public schools.

Educational vouchers: Parents are given credit which can be used towards the cost of education at any school, public or private. Voucher raises income, forcing families to spend the additional amount on education. Supporters of vouchers’ arguments are like general arguments for free choice in markets.

1. Consumer sovereignty - parents can let the school they choose more closely match their tastes.

2. Increased competition for students should make both private and public schools better. Public schools have inefficient bureaucracy - competition would decrease that.

However, there is a way even in the public school mechanism that allows for competition among school systems - parents can, to some extent, vote with their feet - that is, move away from worse performing school systems to better performing ones.

Problems with vouchers.

1. School specialization could become too much.

2. Segregation by race, income or child ability - with vouchers, some schools would charge more than others. The voucher would pay for only a part of the most expensive schools’ tuition.

3. Vouchers are an inefficient and inequitable use of public resources. Education is financed mostly by local property taxes and state taxes

4. The education market may not be competitive. Voucher supporters’ arguments are based on a perfectly competitive model of education. But the education market is closer to a natural monopoly. Due to economies of scale in provision of education, it may be less efficient to have many small schools competing for students.

3.2. Suppose the federal government is considering raising the minimum wage to $10 per hour. An economist testifies to Congress that this plan is inefficient and causes deadweight loss.

A) Show graphically the deadweight loss caused by the minimum wage law.

 

B) Suppose that you are a member of Congress and you believe in the utilitarian social welfare function. How would you determine whether to vote for or against the policy?

You will vote only in case of the utilitarian social welfare function maximization.

 

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