The Future of Pensions in the United States. by Ray SchmittReview by: Joseph F. QuinnIndustrial and Labor Relations Review, Vol. 48, No. 3 (Apr., 1995), pp. 590-592Published by: Cornell University, School of Industrial & Labor RelationsStable URL: http://www.jstor.org/stable/2524792 .

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590 INDUSTRIAL AND LABOR RELATIONS REVIEW

The authors consider the likely income lev- els of the elderly when they assess the propriety of means-testing for services used by that popu- lation. They conclude that such means-testing would be unwise if the program objective is to target public resources to those in most need, because the number of affluent elderly persons is relatively small. There is a well-established association between low income, low wealth, and poor health, and an equallywell-established positive correlation between those characteris- tics and age. A person's previous employment record is a key determinant of his or her welfare in old age, but labor force activity has declined greatly at older ages over the course of the twentieth century. Relatively few claimants would be excluded by means-testing benefits, while administrative costs would escalate.

That analysis contradicts the operative as- sumption in social policy theory, defended by the authors elsewhere in the book, that the older segment of the population represents a high rate of savings. Also, it does not seem to square with the authors' bold statement that prioritizing the "claims of elderly people above claims from other groups in society simply be- cause older people have passed some arbitrarily defined age threshold is a form of ageism which we believe to be objectionable on grounds of inequity." (The authors then remark, however, that care for the physically frail is not ageist because it is provided in response to functional incapacity.)

The authors acknowledge the uncertainty as to exactly how aging will affect the broad range of social and economic benefits and costs. They end the book with a general and rhetorical statement that what is required in order to develop coherent and stable proposals for pub- lic pension reform is "a consensus on the public policy objectives relating to work, welfare, trans- fers, and growth."

John C. Mijares Lecturer University of North Carolina

at Asheville

Balancing Work and Caregiving for Children, Adults, and Elders. By Margaret B. Neal, NancyJ. Chapman, Berit Ingersoll-Dayton, and Arthur C. Emlen. Newbury Park, Calif.: Sage, 1993. 292 pp. ISBN 0-8039-4281-8.

Balancing Work and Caregiving for Children, Adults, and Elders is the most complete and

informative book on caregiving I have read. It has a combination of attributes not found, to my knowledge, in any other text on caregiving. It looks not only at people with one caregiving role but also at those with multiple roles; it provides not only a thorough overview of the research, but also a review of a major study on caregiving; and it examines the personal char- acteristics, demands, resources, and sources of stress in each caregiver category. As a result, the research is extended in an interesting and excit- ing manner, enabling the authors to draw im- portant comparisons.

The authors lay the groundwork in Part 1 by exploring the "work and family" dilemma as it exists today and then providing a detailed ex- planation of their research methodology. Part 2 explores the caregiving roles singly and then together, ending with a synthesis of the find- ings. Part 3 explores the policies, benefits, and services that may help the caregivers, not only in the workplace but in the community and society as well. Part 4 discusses their suggestions for the future in practice, policy, and research.

My only criticism, a minor one, is that the discussion in Part 3 of the policies, benefits, and services that would support the caregiver is dis- appointingly brief. The authors list advantages and disadvantages of each possible support for caregivers, but I feel their discussion could be usefully expanded. For instance, there is no acknowledgment that unpaid leave, although an option, is not financially feasible for most caregivers. Perhaps, however, a thorough-go- ing examination of that kind is a project for another book.

Manilee B. Bell, Ph.D. Director, Work and Family Services Cornell University U.C.L.A.

The Future of Pensions in the United States. Edited by Ray Schmitt. Philadelphia: Pen- sion Research Council, Wharton School of the University of Pennsylvania, 1993. 317 pp. ISBN 0-8122-3239-9, $39.95.

For at least two reasons, the financial well- being of retirees in the future will depend on their participation in employer-sponsored pen- sion plans today. First, retirees with pensions tend to have more income than those without; and second, savings via pensions, if they in- crease aggregate national savings, can spur eco-

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BOOK REVIEWS 591

nomic growth and increase real output. It is this output that future retirees will be consuming.

The federal government's commitment to retirement security takes three forms. The gov- ernment provides substantial retirement income directly, through Social Security. Through tax policy, it subsidizes employer-provided pensions; employer pension "tax expenditures" are esti- mated to be larger than any other single tax subsidy. Finally, it provides insurance against private pension default through the Pension Benefit Guarantee Corporation (PBGC).

All three components have been criticized on both efficiency and equity grounds. Social Security has traditionally penalized work after age 65 (although most of these work disincen- tives are slowly being legislated away), and it provides some questionable income redistribu- tions (for example, toward the spouses of high- income workers), while leaving many members of certain groups (like elderly, nonmarried women) in poverty. Many defined-benefit em- ployer pensions continue to penalize work after the age of pension eligibility, and the federal tax subsidies mentioned above tend to go to high-income earners, since they are most likely to be pension recipients. The PBGC has been accused of creating serious economic distor- tions and, through its pricing structure, of pro- viding large subsidies to certain industries.

The Future of Pensions in the United States ad- dresses these important current issues. The volume, based on a symposium at Wharton's Pension Research Council in 1992, includes five papers, discussants' comments, two panel dis- cussions, and an excellent overview chapter by Ray Schmitt, the editor.

Emily Andrews sets the stage by discussing "Gaps in Retirement Income Adequacy," both now and-based on two microsimulation mod- els-through 2030. She outlines the many is- sues behind the phrases "retirement income" and "income adequacy," and foresees steadily rising real median incomes for the retired, along with continuing pockets of poverty. The opti- mism depends critically on the assumptions built into the simulation models (regarding, for example, real wage growth, labor force partici- pation, and pension recipiency). Three discus- sants, although sympathetic to the problems of forecasting 30 or 40 years hence, are nonethe- less critical of several of the models' key assump- tions, and they view the forecasts as a good deal too rosy.

Olivia Mitchell and Anna Rappaport, Gor- don Goodfellow and Sylvester Schieber, and the first discussion panel all focus on employer

pensions. Mitchell and Rappaport ("Innova- tions and Trends in Pension Plan Coverage, Type, and Design") outline current pension trends (like the growth of defined contribution [DC] plans relative to defined benefit [DB] plans) and discuss what factors will determine these trends in the future. The DB/DC shift has important implications for future retirees. DC plans do not have the adverse work disincen- tives for older workers that many DB plans have, so workers might choose to work longer. DC plans also do not penalize job switching as DB plans do, since they are fully portable, so job mobility may increase. An attendant problem, however, is the propensity of workers leaving jobs before retirement age to claim and con- sume rather than roll-over and save these DC accumulations.

The first roundtable focuses on the reasons for the trend toward DC plans, and identifies two hypotheses: changes in the preferences of firms, perhaps because of the growing regula- tory burden of managing DB plans; and employ- ment shifts away from traditional DB sectors (for example, large, unionized, manufacturing firms) toward firms that provide DC plans if they provide any coverage at all (for example, small, new, service-oriented firms). The discus- sion shows that these two hypotheses are both correct, but they explain different aspects of the DC trend: changing firm preferences best ex- plain the increasing number of DC plans, while employment shifts explain the increasing num- ber of DC participants.

In my view, the most interesting paper is "Death and Taxes: Can We Pay for Retirement Between Them?" by Goodfellow and Schieber, who focus on the equity aspects of the government's commitment to retirement secu- rity. The Social Security system is progressive, since it yields a higher return for workers with lower lifetime covered earnings. Some single workers and high-income workers now in the system will receive a less than actuarially fair return on their (and their employers') contri- butions. On the other hand, high-income work- ers are more likely than lower-income workers to benefit from the tax subsidies enjoyed by private pensions. The authors estimate the net effect of these two redistributions, and con- clude that for single workers, the progressive Social Security effects overwhelm the regressive pension subsidies, and therefore negative rates of return will be earned by some workers-a political problem for Social Security. It would be nice to see a similar analysis including de- pendent and survivor benefits.

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592 INDUSTRIAL AND LABOR RELATIONS REVIEW

The final two papers address the Pension Guarantee Benefit Corporation (PBGC). Zvi Bodie and Robert Merton ("Pension Benefit Guarantees in the United States: A Functional Analysis") outline the economic reasons for government provision of insurance against pri- vate pension default, but argue that the PBGC seems to have other goals, such as providing substantial subsidies to firms and workers in certain distressed industries and encouraging the continuation of DB pensions. The initial premium structure in 1974 was flat-rate (per plan participant) and therefore ignored differ- ential probabilities of default. Premia currently increase with the extent of underfunding (but with a cap), but ignore maturity mismatches in pension fund assets and liabilities, which can lead to trouble. The authors recommend that the government eliminate the implicit subsidies in its pricing structure, and return to its primary insurance function.

Christopher Lewis and Richard Cooperstein ("Estimating the Current Exposure of the Pen- sion Benefit Guarantee Corporation to Single- Employer Pension Plan Terminations") argue that the PBCG should budget for contingent liabilities as these occur, not when the cash outlays come due. They demonstrate how to estimate these future liabilities, using options pricing theory and Monte Carlo simulations, and recommend reforms to fund the current PBGC exposure. The volume ends with a brief roundtable discussion on the role of regulation in pension policy.

Considerable change is under way in the world of retirement income security, especially pensions. These changes demand flexible re- sponses by government. This volume addresses important issues concerning income adequacy, pension trends, and pension insurance, issues that will become even more important as the nation ages. The papers are good, and the comments by knowledgeable discussants are insightful. I recommend this book enthusiasti- cally.

Joseph F. Quinn Professor of Economics Boston College

Labor Economics

The GlobalEconomic Mismatch: High Technol- ogy and Low Pay. By Henry B. Schechter.

Westport, Conn.: Praeger, 1993. 248 pp. ISBN 0-275-9446-1, $55.00.

In this book Henry Schechter attempts to show that global economic forces are produc- ing a mismatch between aggregate demand and supply; that is, that ever-lower wages will retard demand worldwide and result in surpluses of goods produced by advanced technology. Un- fortunately, the thesis of the book is hidden from the reader until the final two chapters, and then it is not convincingly presented.

The Global Economic Mismatch deals with the most important trends of the second half of the twentieth century: declining income and in- creasing income inequality, technological change, international debt, trade and competi- tiveness, and transnational corporations. These trends are presented descriptively, using statis- tics and secondary sources. The book is thus useful as a catalog of data, statistics, and eco- nomic trends. But these trends are not woven together in any meaningful way-there is no understandable synthesis to guide the reader.

Schechter appears to criticize mainstream economics and traditional explanations of the U.S. economy and "competitiveness," but his critique rests on empirical data alone, and it is muddy at best. The reader yearns for some analytical or theoretical grounding to give clar- ity to the descriptive presentation of economic trends and policies. I believe the author could have provided that clarity by being straightfor- ward about his thesis, that economic policy and the behavior of transnational corporations are leading to a dangerous depression of wages and income. He correctly cites worldwide suppres- sion of workers' rights and the interaction of technology and economic policies toward de- veloping countries as important contributors to the "global mismatch," but he is never explicit about the interactions and causes of the eco- nomic results he warns of.

The book would have benefited from an introduction and conclusion. As written, it reads like eight unrelated, disjointed chapters that describe important global economic issues. Even the last chapter, which attempts to inte- grate the themes, becomes bogged down in more minutiae. In that chapter's final section, "An Addiction to Economic Indicators," Schechter complains that economic policy is guided too much by short-term indicators-an observation that, however valid, does not serve effectively as a coda.

Schechter does show that no nation can, by

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