The social security system magnifies gender inequality

Variations across individuals or groups in economic status in retirement can be traced to differences in labor market earnings, retirement saving derived from those earnings, and other factors including marital status, life expectancy, risk aversion, and financial acumen. These factors help explain women’s resources in retirement. For a variety of reasons, women earn less on average over the course of a lifetime than men do. Lower lifetime earnings make it harder for women to save for retirement. Exacerbating these differences, women are on average longer lived, more risk averse, less financially literate, and more likely to have greater caregiving responsibilities than men. Public policies that aim to boost women’s status in retirement should focus on the ways women participate in the labor market and in wealth accumulation programs as well as on specific retirement programs and benefits. Earnings For several interrelated reasons, average lifetime earnings are substantially lower for women than for men. Primarily, women provide a majority of unpaid family caregiving, which can lead women to interrupt their careers, seek part-time jobs in the market, or work in low-wage occupations to maintain flexibility. Caregiving provided during women’s 20s and 30s, when careers are formed and when age-earnings profiles are relatively steep, creates career-long earning losses. One study found that a woman with one child earns 28 percent less on average over her career than a woman without children, partially as a result of time out of the work force. (In sharp contrast, becoming a father typically does not reduce a man’s earnings.) Each additional child reduces average women’s earnings by another 3 percent. Women are also more likely than men to care for their aging parents—a responsibility that predominantly falls on women over the age of 50. People who leave the labor force early to care for a parent or other elderly relative lose an average of $142,000 in wages. Even within occupations, however, women receive unequal pay for similar work. Among full-time, year-round workers in 2018, median women’s earnings equaled 81.1 percent of median men’s earnings. Controlling for age, education, job tenure, occupation, job title, location, and industry, the figure rises to 94.6 percent. Because this estimate controls for job title and occupation, it obscures important facets of gender inequality—the social constraints and biases that limit women’s opportunity for career advancement (i.e., promotions) and pressure women into lower paying jobs. The wage differential varies across occupations but is almost always to women’s detriment. Progressive income taxation of family income provides significant disincentives for married women to work in the paid labor force. By taxing the first dollar of a second earner’s income at the same marginal tax rate as the last dollar of the primary earner’s income, the tax system discourages work among married women. From earnings to retirement wealth Lower lifetime earnings lead to lower retirement wealth. The most important link is through Social Security, which provides over half of family income to 52 percent of the elderly and at least 90 percent of income to 25 percent of the elderly. Women receive Social Security benefits that are, on average, 80 percent of those men receive. Benefits are based on a person’s 35 highest earning years. Women with long career interruptions risk not having 35 years with positive earnings, and the wage gaps noted above further reduce women’s benefits. The motherhood penalty applies here, too: having a first child reduces a woman’s Social Security benefits (through reduced earnings) by an average of 16 percent. Each additional child increases the gap by 2 percent. Women who leave work to care for an elderly family member not only lose wages, they also lose an average of $131,000 in lifetime Social Security benefits. Spouses (or ex-spouses, if the marriage lasted more than 10 years) can choose to receive benefits based on their own earnings history or to receive half of their spouse’s benefit. Given the trends in employment, earnings, and marriage, women are increasingly choosing to receive their own benefits. Women receive Social Security benefits that are, on average, 80 percent of those men receive.