The Effects of Wage Indexing on Social Security Disability Benefits

by L. Scott Muller
Social Security Bulletin, Vol. 68 No. 3, 2008

Text description for Figure 1.
Illustration of the impact of earnings inequality and indexation on disability insurance benefits in 1980 and 2000

This is an illustrative line chart. The vertical axis is labeled primary insurance amount (PIA) and the horizontal axis is labeled average indexed monthly earnings (AIME). The bottom of each scale is marked zero, but no other specific dollar values are given on either axis.

A point on the vertical axis is labeled PIA 1980; above it, another is labeled PIA 2000. Between the two is a third point, which is unlabeled. However, the gap between PIA 1980 and the third point is labeled "bracket effect," and the gap between the third point and PIA 2000 is labeled "earnings history effect."

From left to right, points on the horizontal axis are labeled "Bend 1980," "Bend 2000," "AIME 1980," and "AIME 2000."

Five points are shown in the chart. Point A is the zero-zero coordinate. Point B appears directly above Bend 1980, such that the straight line AB ascends at approximately 45 degrees. Point C appears to the extreme right of the chart at a level slightly lower than the unlabeled point on the vertical axis. The straight line BC ascends at approximately 30 degrees. Point D appears directly above Bend 2000, at a level near the midpoint of the bracket effect. The line BD continues in the trajectory of line AB, such that ABD is a straight line. Point E appears to the extreme right of the chart at a level slightly above PIA 2000. The line DE is above and parallel to line BC.

The chart also notes that PIA marginal replacement rates are 90 percent of the amount under the bend point and 32 percent of the amount over the bend point.

Table equivalent for Chart 1. Median and quatile replacement rates for newly entitled disabled-worker beneficiaries based on lifetime indexed earnings (AIME), 1979–2000
Entitlement year 25th
percentile
Median 75th
percentile
1979 0.49 0.68 0.95
1980 0.51 0.66 0.89
1981 0.51 0.66 0.85
1982 0.48 0.63 0.83
1983 0.46 0.60 0.78
1984 0.46 0.60 0.82
1985 0.46 0.60 0.81
1986 0.45 0.59 0.80
1987 0.46 0.59 0.79
1988 0.45 0.59 0.81
1989 0.46 0.58 0.81
1990 0.47 0.62 0.84
1991 0.47 0.62 0.83
1992 0.46 0.60 0.83
1993 0.46 0.60 0.82
1994 0.46 0.59 0.81
1995 0.46 0.59 0.81
1996 0.46 0.60 0.81
1997 0.46 0.58 0.80
1998 0.45 0.59 0.81
1999 0.45 0.57 0.80
2000 0.46 0.57 0.80
SOURCE: Muller and Lee (2004) and author's calculations using Continuous Work History Sample data.
NOTE: AIME = average indexed monthly earnings.
Table equivalent for Chart 2. Median and quatile replacement rates for newly entitled disabled-worker beneficiaries based on last year of nonzero earnings (indexed to CPI), 1979–2000
Entitlement year 25th
percentile
Median 75th
percentile
1979 0.37 0.53 0.90
1980 0.37 0.50 0.79
1981 0.35 0.48 0.78
1982 0.35 0.49 0.84
1983 0.34 0.48 0.85
1984 0.34 0.49 0.96
1985 0.34 0.49 0.92
1986 0.34 0.51 0.92
1987 0.34 0.50 0.92
1988 0.33 0.51 0.92
1989 0.34 0.51 0.91
1990 0.35 0.54 0.98
1991 0.36 0.55 1.01
1992 0.36 0.53 0.98
1993 0.37 0.56 1.02
1994 0.37 0.56 1.02
1995 0.37 0.55 0.98
1996 0.36 0.53 0.90
1997 0.35 0.51 0.89
1998 0.35 0.50 0.88
1999 0.36 0.52 0.88
2000 0.36 0.52 0.86
SOURCE: Muller and Lee (2004) and author's calculations using Continuous Work History Sample data.
NOTE: CPI = Consumer Price Index.