Stabilizing Social Security--Which Wage Measure Would Best Align Benefit Increases With Revenue Increases

Pursuant to a congressional request, GAO examined the federally available wage measures to determine which would: (1) provide an accurate alignment of social security benefit payment increases with revenue increases; and (2) be compatible with the wage adjustments that exist in other parts of the social security program.

The President established the National Commission on Social Security Reform due to the continuing deterioration of social security's financial position and the inability of the President and Congress to agree on a solution. The Commission recommended, and Congress enacted, an automatic mechanism to help align annual increases in benefit payments with increases in revenues when the reserves dropped below a specified level. GAO matched eight wage measures against the desirable characteristics in the stabilizer provision and found that the Social Security Administration Index and the Employment Cost Index (ECI) were the most desirable because: (1) both offered the broadest coverage of the work force; (2) both were published in final form rather than in preliminary figures that need revision; and (3) the use of either measure would meet the stabilizer's objective of aligning benefit increases with revenue increases. Although ECI was found to be slightly better, neither index provided a precise alignment since the measurement periods of the indices lag behind the cost-of-living adjustment payment period by almost 2 years. GAO believes that its limited observations did not allow for an appropriate assessment of the impact of different economic conditions on the indices and the social security revenues.