Earnings Histories Research Articles

Market and Beneficiary Characteristics Associated With Enrollment in Medicare Managed Care Plans and Fee-for-Service

Risk selection in the Medicare managed care program ("Medicare Advantage") is an important policy concern. Past research has shown that Medicare managed care plans tend to attract healthier beneficiaries and that market characteristics such as managed care penetration may also affect risk selection. To assess whether patient enrollment in Medicare managed care (MMC) or traditional fee-for-service (FFS) Medicare is related to beneficiary and market characteristics and provide a baseline for understanding how changes in Medicare policy affect MMC enrollment over time. Data sources were the 2004 Medicare MMC and FFS CAHPS surveys, the Social Security Administration's Master Beneficiary Record, MMC Market Penetration Files, and 2000 Census data. We estimated logistic regression models to assess what beneficiary characteristics predict enrollment in MMC and the moderating effects of market characteristics. Enrollees in MMC plans tend to have better health than those in FFS. This effect is weaker in areas with more competition. Latinos and beneficiaries with less education and lower income, as indicated by earnings history or local-area median income, are more likely to enroll in MMC. Enrollment in MMC is related to beneficiary characteristics, including health status and socioeconomic status, and is modified by MMC presence in the local market. Because vulnerable subgroups are more likely to enroll in MMC plans, the Centers for Medicare & Medicaid Services should monitor how changes to Medicare Advantage policies and payment methods may affect beneficiaries in those groups.

Lessons Learned from a State-Funded Workplace Literacy Program

Findings from an evaluation of a workplace literacy program funded by the State of Indiana are presented. Working with employers, providers were given considerable latitude to design their own training regimens. The state awarded certificates to workers who achieved certain levels of proficiency in reading, math, critical thinking, problem solving (assessed by CASAS), and computer literacy (certified by IC3). The evaluation relied on qualitative and quantitative data. Multiple site visits were undertaken and a survey of participants (n = 1800), learning gains, and earnings histories were quantitatively analyzed.Key findings include a significant interest in college attendance by incumbent workers, higher-than-expected levels of literacy in pre-assessments, little reliance on contextualization, and the importance of a program champion and supervisory support at workplaces. Business return was not formally measured, but employers and workers reported significant morale gains and frequent productivity gains.

Reported Earnings and Analyst Forecasts as Competing Sources of Information: A New Approach

Givoly (1985) provides formal evidence on the relation between the past history of earnings and their own forecast. Our study uses a new methodology, modified Granger causality tests, to further analyze the information flows between earnings and forecasts. Our application of this widely acclaimed time series approach complements existing cross-sectional studies by abstracting from stock market reactions to information, and focusing on the dynamic interaction between reported earnings and analysts' forecasts. Based on long time series of analyst earnings forecasts and reported earnings, we provide formal and compelling evidence of bi-directional causality. Further, we report that the lag structure in information flows is longer than has been documented in the previous literature. This is consistent with our expectation that, in addition to past earnings reports, the forecasts themselves make a significant contribution to the information that is reflected in future earnings. However, the presence of feedback also suggests that past earnings reports as well as past forecasts are incorporated into later forecasts. Collectively, our findings imply that the information in earnings reports has inherent positive value and that forecasts do not fully substitute for earnings releases.

Assessing Economic Damages in Personal Injury and Wrongful Death Litigation: The State of Illinois

Forensic economics experts (FE) working with attorneys engaged in litigation, whether consulting, preparing a report, or testifying at deposition or trial, generally are expected to have some knowledge (1) of the state’s statutory and case law regarding allowable damages and methods; and (2) that certain topics (e.g., taxes, collateral sources) should not be mentioned or considered at certain times since a mistrial could result. This situation creates a tension: forensic economics experts are economics experts and are not attorneys, but nonetheless must have a reasonable understanding of the relevant state law. In this vein, the Journal of Forensic Economics (JFE) continues to publish a series of articles on the ways such damages are calculated in different state jurisdictions, one state at a time.2 The state of South Dakota is included in this issue and this paper adds Illinois to the list. Following the format of previous articles in this JFE series, Section II provides a listing of the controlling statutes, general case law, and court rules. Section III discusses the concept of earning capacity which appears throughout PI and WD case law in Illinois. Section IV discusses discounting to present value. Fringe benefits are discussed in Section V, while Section

Marriage, Divorce and the Work and Earning Careers of Spouses

Social Security benefits depend on the employment and earnings history of the covered worker, but, especially for women, they depend on one's marital history and the employment and earnings history of one's spouse. This paper examines the interrelationship between marriage, divorce, employment and earnings of men and women. Since getting married (or getting divorced) tends to affect women's employment choices differently than men's, we consider the sexes separately. We estimate: (1) the impact of earnings, work hours and wages while unmarried on the likelihood of (re)marriage, (2) the effect of these measures of career success while married on the likelihood of divorce; (3) the effect of being married on men's and women's propensity to participate in the labor force, and conditional on participation, the effect of being married on earnings, wages and annual hours of work; for all these labor market outcomes we also assess the impact of the length of the marriage. Together, these results show a pattern of gender specialization in marriage, with men moving toward and women moving away from more intensive and extensive employment and the financial gain it brings. Success in the labor market while single increases the likelihood of marriage for men and decreases it for women. More work and greater financial rewards from work tend to stabilize marriage for men and destabilize marriage for women. Our results also show substantial change in the relationship between marital and employment careers for those born after WWII, but only for women. The employment careers of younger women are much less responsive to marriage than were those of their mothers or older sisters.

Estimates of Intergenerational Elasticities Based on Lifetime Earnings

Using Norwegian intergenerational data with a substantial part of the life-cycle earnings of children and almost the entire life-cycle earnings for their fathers, we present new estimates of intergenerational mobility. Extending the length of the fathers' earnings windows from 5 to 30 years increases the estimated elasticities. Increasing the age of father at observation has the opposite effect. Our findings indicate that intergenerational earnings mobility may have been strongly overstated in many earlier studies with shorter earnings histories. Biases in the estimated elasticities appear to be related to age and/or life-cycle measurement errors more than persistency in the transitory innovations.

Social Security as a Retirement Resource for Near-Retirees, by Race and Ethnicity, Nativity, Benefit Type, and Disability Status

This paper analyzes Social Security benefits as a retirement resource for selected subgroups of current and recent cohorts of near-retirees. The paper examines the distribution of benefits among (1) several race-ethnic subgroups, (2) the native-born and the foreign-born, (3) worker, spouse, and survivor beneficiaries, and (4) the disabled and the nondisabled. We use improved data (actual earnings history data) to produce more accurate measures of benefits. We look at how the average values of several benefit measures such as Social Security wealth and earnings replacement rates differ among the selected subgroups and discuss reasons for these differences. We find that substantial differences in earnings levels and/or mortality levels among these subgroups interact with Social Security program provisions to produce sizable differences in the values of our benefit measures.

SOCIAL SECURITY BENEFITS AS A RETIREMENT RESOURCE FOR U.S. NEAR‐RETIREES

This paper analyzes Social Security benefits as a retirement resource (wealth and income) for U.S. near‐retirees. We look at how the average values of several measures of benefits such as Social Security wealth and earnings replacement rates have changed from earlier cohorts to today's near‐retirement cohort, examine differences among demographic and socioeconomic groups within cohorts, and discuss reasons for these changes and differences. We use improved data (actual earnings history data) to produce more accurate measures of benefits. The paper also uses some new benefit measures. Three key findings are: (1) average real Social Security wealth increases markedly as we move to later cohorts primarily because of increases in average real lifetime earnings; (2) replacement rates fall as we move from the cohorts of persons reaching 61 in 1993–97 to later cohorts primarily because of the phase‐in of increases in the age of eligibility for full benefits and the increasing labor market activity of women; and (3) median Social Security wealth is much higher for women than for men because women live longer.

Defined contribution plans, defined benefit plans, and the accumulation of retirement wealth

The private pension structure in the United States, once dominated by defined benefit (DB) plans, is currently divided between defined contribution (DC) and DB plans. Wealth accumulation in DC plans depends on a participant's contribution behavior and on financial market returns, while accumulation in DB plans is sensitive to a participant's labor market experience and to plan parameters. This paper simulates the distribution of retirement wealth under representative DB and DC plans. It uses data from the Health and Retirement Study (HRS) to explore how asset returns, earnings histories, and retirement plan characteristics contribute to the variation in retirement wealth outcomes. We simulate DC plan accumulation by randomly assigning individuals a share of wages that they and their employer contribute to the plan. We consider several possible asset allocation strategies, with asset returns drawn from the historical return distribution. Our DB plan simulations draw earnings histories from the HRS, and randomly assign each individual a pension plan drawn from a sample of large private and public defined benefit plans. The simulations yield distributions of both DC and DB wealth at retirement. Average retirement wealth accruals under current DC plans exceed average accruals under private sector DB plans, although DC plans are also more likely to generate very low retirement wealth outcomes. The comparison of current DC plans with more generous public sector DB plans is less definitive, because public sector DB plans are more generous on average than their private sector DB counterparts.

Rewriting earnings history

Research on the usefulness of financial information generally focuses on the innovation in the information examined, such as an earnings surprise or cash flow growth. Consequently, prior research sheds little light on the role of the rich historical record of financial information in users’ decision-making. Using a sample of published restatements of earnings, we show that the revision of the historical pattern of earnings, distinct from the magnitude of the restatement and its impact on current earnings, significantly affects investors’ decisions and predicts class action lawsuits. Specifically, we find that restatements that eliminate or shorten histories of earnings growth or positive earnings have significantly more adverse effects for investor valuations and the likelihood of lawsuits than other restatements. This evidence about the value-relevance of refreshing the historical record of earnings is pertinent to the FASB’s recent cautious expansion of the scope of circumstances that require a restatement of financial information in FAS 154.

Performance of newly listed mining stocks on the London AIM and Toronto TSX-V Stock Exchanges

Mining is a highly capital intensive endeavour and access to equity capital a key requirement for the development of a mine. New mining issues are difficult to value since unseasoned companies often have no past earnings history on which to base predictions of future earnings. Some equity markets have developed large mining boards, and investors seeking the promise of the high returns risky mining investments often focus their attention on these markets.

Life-Cycle Variation in the Association between Current and Lifetime Earnings

Researchers in a variety of important economic literatures have assumed that current income variables as proxies for lifetime income variables follow the textbook errors-in-variables model. In an analysis of Social Security records containing nearly career-long earnings histories for the Health and Retirement Study sample, we find that the relationship between current and lifetime earnings departs substantially from the textbook model in ways that vary systematically over the life cycle. Our results can enable more appropriate analysis of and correction for errors-in-variables bias in a wide range of research that uses current earnings to proxy for lifetime earnings.

Are Americans Saving “Optimally” for Retirement?

We solve each household’s optimal saving decisions using a life cycle model that incorporates uncertain lifetimes, uninsurable earnings and medical expenses, progressive taxation, government transfers, and pension and social security benefits. With optimal decision rules, we compare, household by household, wealth predictions from the life cycle model using a nationally representative sample. We find, making use of household‐specific earnings histories, that the model accounts for more than 80 percent of the 1992 cross‐sectional variation in wealth. Fewer than 20 percent of households have less wealth than their optimal targets, and the wealth deficit of those who are undersaving is generally small.

Evidence on What CFOs Think About the IPO Process: Practice, Theory, and Managerial Implications

Many privately held companies aspire to go public through an initial public offering. But the IPO process is time-consuming, expensive, and fraught with uncertainty. With the aim of shedding light on the process and reducing at least some of the uncertainty, the authors asked several hundred CFOs to share their experiences and perceptions with regard to six specific aspects of the IPO process: (1) motives for going public; (2) the timing of IPOs; (3) criteria for choosing an underwriter; (4) cause of IPO underpricing; (5) IPO signaling; and (6) reasons to stay private. The main findings from the survey are summarized below: •The primary motive for going public is to create a currency-publicly traded shares-that can be used to fund acquisitions. •CFOs strongly base the timing of their IPOs on overall stock market conditions, while paying relatively little attention to IPO market conditions. •CFOs choose underwriters based on their overall reputation and industry expertise. Somewhat surprisingly, issuers did not express much concern about the underwriter fee structure. •CFOs view underpricing mainly as a means of compensating investors for taking on the risk of IPOs in the after-market. •The two strongest perceived positive signals for issuer quality are a history of strong earnings and the use of a reputable investment bank. The strongest negative signal is the sale of insider shares in the IPO. •The primary reason for staying private cited by the CFOs of private companies is the desire to maintain decision-making control.

The intergenerational persistence of lifetime earnings

This paper proposes a new method for estimating the intergenerational persistence of lifetime earnings from data that contain only short sections of individual earnings histories. The approach infers lifetime earnings persistence from the persistence of short earnings averages together with information about the stochastic process governing individual earnings. I find that lifetime earnings are substantially more persistent than previous estimates based on short panel data suggest. About 54% of lifetime earnings differences between fathers persist into their sons’ generation. This persistence estimate exceeds previous estimates based on five-year earnings averages by one third. These findings are robust against alternative assumptions about the data generating process for earnings.

Life-Cycle Variation in the Association between Current and Lifetime Earnings

Researchers in a variety of important economic literatures have assumed that current income variables as proxies for lifetime income variables follow the textbook errors-in-variables model. In our analysis of Social Security records containing nearly career-long earnings histories for the Health and Retirement Study sample, we find that the relationship between current and lifetime earnings departs substantially from the textbook model in ways that vary systematically over the life cycle. Our results can enable more appropriate analysis of, and correction for, errors-in-variables bias in any research that uses current earnings to proxy for lifetime earnings.

The role of earnings and financial risk in distributional analyses of Social Security reform measures

AbstractThe Social Security Trustees project that the Social Security program faces longterm financing difficulties. Several proposals that have been offered to shore‐up the finances of the Social Security program would create individual retirement accounts funded with part of the payroll tax. The authors of many of these proposals claim that future beneficiaries will be better off under their new system than under the current system. This study examines the consequences of differing earnings patterns and year‐to‐year differences in asset returns have for Social Security retired worker benefits in three Social Security reform proposals. Incorporating both actual earnings histories and variation in asset returns shows that none of the three individual account plans can always deliver benefits that are higher than payable current‐law benefits. © 2006 by the Association for Public Policy Analysis and Management

Accounting for Social Security Benefits

Every year, the Social Security Administration mails Social Security Statements to all eligible workers over the age of 25. These Statements include estimates of monthly retirement and other benefits that participants are projected to receive under the Social Security Act. The Statements also summarize Social Security Administration (SSA) records about participants' earnings history, which determines benefit levels, and provide various background information about the Social Security program and its finances. For many Americans, the Social Security Statement is the principal source of information about Social Security benefits. This paper analyzes the content of the current Social Security Statement. While the Social Security Statements are useful tools for certain kinds of financial planning and allow participants to check the accuracy of the Administration's records of their earnings history, the Statements may also lead participants to misinterpret the value of their Social Security benefits and may make it difficult for participants to compare Social Security benefits to other sources of retirement savings. In addition, the current Social Security Statements obscure the extent to which additional years of labor market participation increase the value of Social Security benefits. After reviewing the strengths and weakness of the current structure of Social Security Statements, the chapter then describes how these statements might be supplemented with estimates of the actuarial value of Social Securities benefits for individual participants. This supplemental information would make it easier for participants to compare Social Security benefits to other sources of retirement incomes, and would highlight the manner in which participants' Social Security benefits accrue over time thereby mitigating some of the labor market inefficiencies associated with Social Security payroll taxes. The chapter concludes with a review of several potential drawbacks of supplementing Social Security Statements with accrued values, including the possibility that this supplemental information would make it more difficult to change Social Security benefits in the future, the possibility that disclosing the accrued value of Social Security benefits could lead some workers to make offsetting reductions in other forms of retirement savings, and the possibility that this supplemental information might make the redistributive aspects of the Social Security system more transparent, potentially weakening support for the program among some constituencies.

The Role of Earnings and Financial Risk in Distributional Analyses of Social Security Reform Measures

The Social Security Trustees project that the Social Security program faces long-term financing difficulties. Several proposals offered to shore-up the finances of the Social Security program would create individual retirement accounts funded with part of the payroll tax. The authors of many of these proposals claim that future beneficiaries will be better-off under their new system than under the current system. This study examines the consequences of differing earnings patterns and year-to-year differences in asset returns have for Social Security retired worker benefits in three Social Security reform proposals. Incorporating both actual earnings histories and variation in asset returns shows that none of the three individual account plans can always deliver benefits that are higher than payable current law benefits.

Fortunate Sons: New Estimates of Intergenerational Mobility in the United States Using Social Security Earnings Data

Previous studies, relying on short-term averages of fathers' earnings, have estimated the intergenerational elasticity (IGE) in earnings to be approximately 0.4. Due to persistent transitory fluctuations, these estimates have been biased down by approximately 30% or more. Using administrative data containing the earnings histories of parents and children, the IGE is estimated to be around 0.6. This suggests that the United States is substantially less mobile than previous research indicated. Estimates of intergenerational mobility are significantly lower for families with little or no wealth, offering empirical support for theoretical models that predict differences due to borrowing constraints.