DEPOSITED By UNITED STATES oF pcos

1938 CONTENTS

Socrat Security iN Review Cost Factors in OLp-AGE INsuRANCE, by W. R. Williamson Decipinc CLaims TO UNEMPLOYMENT BENEFITS; AN OUTLINE OF THE BritisH SYSTEM, by Ralph S. Hardiman UNEMPLOYMENT COMPENSATION: Review of the month Deposits in State clearing account and benefit account, benefits charged, and balance in unemployment trust fund (table) State activities Annual reports Claims for benefits (table) Legislative amendments Number and amount of benefit payments (table) Number of benefit payments for total and partial unemployment, by amounts of benefit checks (table) Amounts of benefit payments for total and partial unemployment, by amounts of benefit checks (table) Personnel administration in State unemployment compensation agencies Operations of United States Employment Service (table) PUBLIC ASSISTANCE: Public assistance: Statistics for the United States for May 1938 General relief Special types of public assistance Relief in urban areas: Statistics for April 1938 A seasonal index of urban relief, by Helen R. Jeter and Herman W. Gruber... . Interchange of relief information among departments of public welfare of large

cities, May 1938 Relief in rural and town areas: Statistics for April 1938 O_p-AGE INSURANCE: Tabulations of 1937 employer and employee data ee

Applications for employee account numbers... .... 2... 22... oe eee eee Claims for lump-sum payments Recent applicants for employee account numbers... .............---02 000000 eee FINANCIAL AND Economic Data: Financial and economic data Old-age reserve account (table) Federal tax collections under titles VIII and IX (table) Total social security and governmental receipts and expenditures (table) Status of the unemployment trust fund (table) Federal appropriations and expenditures under the Social Security Act (table) . Federal grants to States: Checks issued by the Treasury under the act (table). . Federal grants to States: Advances authorized and certified by the Social Security Board for public assistance (table) Federal grants to States: Advances authorized and certified by the Social Security Board for administration of unemployment compensation laws and State employment services (table) PAMCENG PUMLICATIOUD. 5.5 ncaa cw cee eek ce ascessecey ss'vs 05 sea

81468—38 -1

Social Security Bulletin

Volume lI

JULY 1938

Number 7

SOCIAL SECURITY IN REVIEW

The recent announcement by the Social Security Board of plans for a thorough study of experience gained in the administration of unemployment compensation marks the beginning of a new phase in the development of this program in the United States. With the data now available from opera- tions under more than a score of State laws over a period of 6 months, it is possible for the first time to make a comprehensive study of the effectiveness of methods and procedures in State unemployment compensation systems. It is expected that this study will reveal strong and weak points in our Federal-State system and will point the way for developments in unemployment compensation dur- ing the next few years. On the basis of the survey, which is to be conducted jointly by the Social Security Board, the Interstate Conference of Un- employment Compensation Agencies, and individ- ual State agencies, specific recommendations will be made for revision of State administrative meth- ods and possibly of State legislation as well.

The principal objectives of the study were de- scribed as follows:

“1. Greater economy in unemployment insur- ance administration.

“2. Development of methods for calculating and paying benefits which will be more easily under- stood by workers and employers and will result in more prompt payment of benefits.

‘3. Reduction, insofar as possible, of the volume of detail required of employers in complying with the legislation.”

“Tt is important to remember,” it was declared in the announcement of the study, ‘‘that the State administrative agencies and the Social Security Board had at the outset very little experience to guide them in matters of detail. Furthermore, the American system of unemployment insurance is fundamentally different from those of most other countries. We provide benefits in propor- tion to a man’s past wages, rather than a flat amount regardless of former wages—a method

which is considerably more difficult to administer. In view of this fact, and in view of the rapidity with which the program was established through- out the country, the States have on the whole done an exceedingly good job. There are still difficul- ties, however, and some provisions in existing laws are unduly complicated.’’ Specific recommenda- tions on many points to be studied are expected to be completed this fall.

The total amount of unemployment benefits paid in May was somewhat above the total for the preceding month. Increases in the amounts paid by Indiana and Mississippi arose from the fact that in these two States benefits first became payable in April, and May was the first full month during which benefit checks were issued. Decreases in the amount of benefits paid were reported by 16 States and the District of Columbia. The de- creases in some of the States were attributed to declines in lay-offs during the preceding weeks, to some seasonal reemployment, and to the exhaus- tion of wage credits of workers who had been receiving benefits. There was a slight decrease from the preceding month in the total number of initial benefit claims received in May. By the end of that month, the total amount of benefits charged to State benefit-payment accounts since the first of the year had reached nearly $140 million. With the beginning of benefit payments in Iowa, Michigan, and South Carolina in July, the unemployment compensation program has become fully effective in 27 States and the District of Columbia.

Total Federal, State, and local obligations in- curred for aid to the needy in May, including earn- ings under the Works Program but excluding tran- sient care and administrative expense, amounted to $247.8 million. This represents an increase of $4.8 million over the total for the preceding month and is the highest total for any month for which figures are available. The estimated number of different households receiving public

relief under one or more of the several programs on which current data are published by the Social Security Board also increased in May to the highest total for any month since July 1936, the first month for which such an estimate was made. The total for May was approximately 6.4 million households, comprising about 20.2 million persons. Of the total costs incurred for May, nearly 60 percent represented earnings of persons certified as in need of relief employed under the Works Program; a little more than 15 percent represented obligations incurred from State and local funds for general relief extended to cases; and obligations incurred from Federal, State, and local funds for payments to recipients of old-age assistance, aid to the blind, and aid to dependent children ac- counted for nearly 17 percent. The balance was for allowances to persons enrolled in the Civilian Conservation Corps and for emergency subsistence payments to farmers by the Farm Security Administration.

Increasing recognition has been given in recent weeks to the continuing nature of problems of un- employment, public assistance, and relief. The record of the Third Session of the 75th Congress, which adjourned sine die on June 16, discloses an unusual concern over these problems, both in debate and in measures adopted to cope with them. A similar record would doubtless be revealed in the proceedings of many State legislatures which have held sessions in recent months. Concern with these problems, of course, is by no means confined to legislative bodies but holds a promi- nent place in the press and in many gatherings of public officials and social and scientific organiza- tions. Sessions of the National Conference of Social Work, at Seattle, Washington, were dom- inated by consideration of questions related to unemployment and relief. Papers presented at this conference by a number of Government officials and experts in public welfare expressed great concern over the increasing magnitude of problems of dependency and stressed the need for improved methods of dealing with them.

The final report of the National Census of Par- tial Employment, Unemployment, and Occupa- tions, released on June 27, provides a statistical basis for analysis of the problems of unemploy- ment which hitherto has been almost completely lacking. Particularly significant among the con- clusions resulting from analysis of data gathered in the census are facts with regard to the incidence

of unemployment among different occupational groups. The census figures not only show con- clusively that the hardships of unemployment fall more heavily upon unskilled and inexperienced workers than upon trained workers but indicate that the problem which this conclusion suggests is increasing in magnitude. ‘This evidence of a very high ratio of unemployment among the un- skilled emphasizes a real national problem,” said John D. Biggers, Administrator of the census, in discussing the report. “If, as is indicated, the developments in industry call for workmen of higher skills, the obvious demand is to give more attention to proper vocational training so that the Nation may be able to utilize more easily these unemployed workmen.”

As a result of the recent enactment of a bill to provide for a separate system of unemployment insurance for railroad workers, to be adminis- tered by the Railroad Retirement Board, direct Federal administration of unemployment in- surance and old-age insurance programs are linked together in one agency for the first time in this country. Among the many significant implica- tions of this development, two will be of immediate interest from the standpoint of social insurance administration. These are (1) the coordination of this federally administered unemployment in- surance plan with existing State systems estab- lished under the Social Security Act; and (2) the joint use for unemployment and old-age insurance of one set of wage records maintained for the large group of railroad workers covered by the two programs.

There has been conjecture as to the extent to which workers covered by the Railroad Retirement Act may have also had employment covered by the Social Security Act’s provisions for old-age insurance or by State unemployment compensa- tion laws. Sample studies intended to throw light on this question have recently been under con- sideration by officials of the Social Security Board and the Railroad Retirement Board. The wage reports now being received by the Social Security Board from the Bureau of Internal Revenue are being posted to the accounts of individual workers at the rate of approximately 650,000 per day. The progress already made in posting these wage reports has been such that a substantial body of material on earnings is already available in Balti- more, and sample studies as well as general tabulations are now under way.

Social Security

COST FACTORS IN OLD-AGE INSURANCE

W. R. WILtiaAMson *

The old-age insurance program established by the Social Security Act seems to follow in certain aspects the underlying principles of life and an- nuity insurance as developed under the auspices of private insurance companies. It should therefore be of interest to compare the actuarial processes of cost analyses in private insurance with those applicable to the Federal old-age insurance pro- gram and to point out certain differences between private and social insurance. Factors applying to future costs that are to a large degree measura- ble in the former are more hypothetical in the latter, subject as they are to a heavier weighting of future benefits and to the changing trends of social objectives and economic forces.

The actuary, in private life insurance, is assumed to understand the mathematical relationships of the business. In particular, he must be largely responsible for the determination of adequate premium rates for the benefits proffered. Ordi- nary insurance in the United States has commonly stressed more dramatically the benefits payable in event of death than the supplemental benefits payable because of continued life, and the insur- ance company’s sense of responsibility is evidenced by the use of mortality tables which provide for more than the ‘‘most probable’ number of deaths. There is now an increasing emphasis on annuities, or benefits to the living. The conservative mortality tables, developed for life insurance, are not conservative when applied to annuities. Equally conservative practice would require mor- tality tables for annuitants to indicate fewer deaths than are expected. This would provide a safe margin for contingencies and inadequacies in the estimates of factors governing costs.

The level-premium life insurance business has developed four distinct elements into which the individual premium of any single year can be broken: (1) contribution to the probable death losses of the year; (2) contribution to the year’s expenses of administration; (3) the year’s contri- bution to the reserve developed to supplement the later premiums when, since death rates steadily increase with age, the whole annual premium alone might be inadequate to meet the full costs of pro- tection (this can be called the banking or savings

*Consulting Actuary, Social Security Board.

Bulletin, July 1938

element); (4) the year’s margin earmarked for the contingencies of the business, for some return to capital in stock companies, and, in participating insurance, for the payment of dividends or a share of the surplus to policyholders (for early policy years this margin may be negative).

Rules have been developed to determine, as a safeguard to policyholders, the required legal reserve for private insurance companies, based upon the best available standards recognized by State legislatures and supervising insurance de- partments.

The main duty of the actuary may be said to center upon a full understanding of the other three elements—death losses, administrative expenses, and margins. He must recognize the changing death rates. He must know with some degree of adequacy how the overhead expenses of the busi- ness will develop and how they are to be assessed against fairly rigid gross insurance premiums. He must know within reasonable limits such factors as the probable relationship between new business and renewals, and what real financial progress may be expected from a growing volume of business.

Since the primary source of income is the sum total of the premiums, which must be adequate for all these demands, the most important factor is an understanding of the proper handling of the “con- tingency’’ margin. The actuary must know the general trends of mortality, interest rates, average size of policy, costs of clerical and selling labor, special problems posed by the fact that the medical examination is a safeguard mainly for a short period after the examination, and other less obvious sources of loss or gain. He must learn to recognize the proportion of this margin which may wisely be allotted year by year as dividends to policyholders (and in stock companies to stock- holders); the proportion which may be regarded as a sound provision for special known cost ele- ments, left uncovered by the legal reserve stand- ards; and the residue for true “contingencies,” such as an epidemic, excess war mortality, or catastrophic economic conditions.

When the provision for death benefits is by far the major portion of the insurance company’s business, a single mortality table, such as those specified by insurance departments for life insur-

ance, might be used, in the interests of simplicity of supervision, to evidence all expected mortality. When, however, provision for annuity payments predominates, the table adopted for annuity valuation should be differently constructed. Other mortality tables, largely based on past experience and especially designed for annuities, have been used for annuity valuations. A fore- cast table, anticipating further improvement in mortality among future annuitants, would be desirable for a company writing annuities alone. Alternatively, in such a situation a wide margin for contingencies should be included in the gross rates, and the legal reserves should be supple- mented by contingency reserves.

Mortality tables are rather technical affairs. While they have been much used by laymen, a thorough comprehension of their exact meaning is extremely rare. Even when they are quoted by insurance companies, it is rather exceptional for a clear statement to indicate that the company does not expect the past experience upon which they are based to be reproduced with any exact- ness in the future. Yet the ordinary insurance business is so important that such statements should be understood.

The direction of private insurance companies requires competent supervision to resolve the conflict between provision for complete and per- manent company safety on the one hand and low net costs to policyholders on the other. Im- portant also is the size of reserves for contingencies to allow for new trends which develop and to supplement the requirements of the legal valua- tion standards. The legal valuation standards are broad and basic; the individual company needs a closer scrutiny of its own liabilities.

The actuary’s knowledge of premium rates, reserves, contract forms, must be supplemented by an understanding of the six following factors: (1) the method of selection of the entrants into insurance coverage for the purpose of eliminating the most hazardous risks; (2) the technique of effective salesmanship which brings in “‘new blood ’ at a reasonable rate in order to maintain a consid- erable proportion of the business in force within the period of low mortality following medical and underwriting selection; (3) the presumptive rate of growth of the company and such policy persist- ency as will balance the high first-year expenses by an adequate volume of lower renewal expenses; (4) the trends of such variables as mortality, per-

sistency, interest rates, insofar as they affect costs and solvency; (5) the modification of premium rates for new entrants and the adoption of a new dividend scale whenever the general conditions of the business make such modification desirable; (6) the control of future commitments by properly drawn policy provisions.

The distinctions between social insurance and private life insurance as developed in the United States are numerous. Private life insurance lacks the ability to force new applicants to join its ranks. Social insurance lacks the selective control over the entrants into the coverage which private insurance exercises by the privilege of rejection. Social insurance may not discard arbitrarily, by the methods of individual selection, those risks which will presumably increase claim rates. It empha- sizes to a greater extent benefits to the living rather than benefits following death. Social insurance commonly reserves under national policy the right to change contribution rates and benefit rates, both for future entrants and for those already covered. It need not initially determine rates of contribution which are to hold for the entire dura- tion of individual coverage, and it cannot deter- mine them in perpetuity.

Social insurance thus functions because large groups of the citizens seem in need of a program to furnish certain benefits. Coverage is determined by law; it follows a formula. Under broad defini- tions, rules and regulations determine when old- age income shall be granted. Should increased rates of tax or contribution be necessary in the future, they must be determined by changes in the law, unless the law specifically grants such lati- tude. Only the ezisting coverage of the private insurance company enters into current rates and valuation. Its current coverage will diminish steadily because of the joint effects of death, maturity, expiry, lapse, and surrender. The “rate determination” and “valuation” of social insurance involve not only all the survivors of current coverage but all additional risks covered later. The weighting of future coverage is there- fore so much greater in the actuarial consideration of social old-age insurance than in life insurance as to make the process of valuation much less depend- able. Nevertheless, those responsible for admin- istration of the old-age insurance program must survey initially, and periodically thereafter, the actuarial and social principles and operation of the system.

Social Security

COSTS—WHAT LIES BACK OF THE ESTIMATES

The Committee on Economic Security made crude estimates of the costs of the Federal old-age benefits program running to the year 1980, and of the anticipated trends of congressional appropria- tions and benefit payments. Estimates of the cost of prospective benefits involve many inde- terminate factors. After social insurance is estab- lished by law, a long period of time is required for the development of adequate factual information to determine the general reasonableness of any estimates. Since under the Social Security Act ultimate benefits are determined by defined earnings over a period of time beginning January 1, 1937, the extent of the prospective benefits under the coverage is dependent on the amount of such earnings, and the amount of earnings fluc- tuates under many influences. Even though the prospective benefits determined by wages are evidenced to a large extent by established records, the failure to establish such records may not necessarily result in the denial of coverage to those for whom they have not been established. The legal determination of the fact and extent of coverage will presumably prevail over the pre- liminary statistical determination evidenced by the records.

In the following discussion certain factors per- tinent to any such cost analysis are listed. Studies under all these captions must be initiated and carried through for a preliminary evaluation of the financial aspects of old-age benefits under the Social Security Act. The credence which such studies deserve is still limited. Census material pertinent to these studies has not been developed for the purposes of the act. Such material is not readily adaptable to the problems at hand, and arbitrary adjustments introduce potential errors. The census deals with a population which, over long periods of time and in many areas, has been somewhat careless in the reporting of such facts as dates of birth and death and periodic statements as to age. Employment precisely in keeping with the definitions of the act was not defined in former census reports. Ages of immigrants and emigrants are not easily ascertained. When population growth between censuses has been exceptional in some respect, the situation is difficult to explain, save by using a balancing factor, net migration.

In connection with the initiation of the Social

Bulletin, July 1938

Security Act, it was estimated that the annual covered pay roll for 1937 would be in the neighbor- hood of $28 billion, representing between 25 mil- lion and 26 million full-time jobs held by those initially covered, and additional workers as they qualified by engaging in covered gainful employ- ment. There is as yet no clear evidence of the exact number of covered workers or approximate full-time jobs, though nearly 40 million benefit account numbers have been assigned and it is estimated that wage reports received for the first 6 months of 1937 represent 32 million persons for whom tax payments were made by employers lia- ble to taxation under title VIII of the act. With- in the next year there should become available considerable data with respect to employees whose employers have complied with the tax re- quirements of title VIII and have reported wages as a basis for such tax payment.

There is doubtless some degree of noncompliance or delay in the payment of taxes, and certainly some employers are awaiting legal or administra- tive decision on whether or not they and their employees are liable to the title VIII tax of the Social Security Act. The total tax receipts during the year 1937 seemed to fall somewhat below the amount anticipated in the early estimates. To what extent this implies that the aggregate wages of covered employees are less than those so roughly anticipated or that noncompliance is more general cannot yet be known.

There is a recognized lag in tax collection. Even though such employment changes as are now developed were accurately recorded, one can hardly believe that the tempo of the period of 1937 and 1938 is indicative of the situation during succeeding decades.

RELATIVELY MEASURABLE FACTORS

Six major factors are involved in measuring the prospective costs of the Federal old-age benefits program, each of which will require careful analysis of vital and occupational statistics, mortality, wage rates, work habits and opportunities, and other economic and social trends in the United States. Granting that the coverage, benefits formula, and financial principles prescribed in the Social Security Act for old-age insurance remain static, the areas thus bounded have a constantly varying content. This content varies with chang-

ing birth and mortality rates, and with various

economic and social trends. Under the headings of coverage, survival, continued work after 65, migration, industrial and technical development, and operating expenses are outlined the compo- nent parts which enter into these six factors susceptible to some cost measurement. It is patent that the effect of war, booms, and depres- sions on these various factors is unpredictable.

Coverage and Wage Credits

The determination of coverage, the distinction between the “ins’’ and the ‘‘outs,’’ measurement of present coverage by reported and estimated wage credits, and estimates of prospective coverage and wage returns are first steps in a preview of costs.

Present Coverage

Age.—The Social Security Act excludes from Federal old-age benefits all individuals who were 65 years of age or over on January 1, 1937. Those who were from 61 to 64 on that date had limited coverage, to the extent that their wages from covered employment entitle them to lump-sum payments at age 65 or a death payment to their relatives or estates if they die before age 65.

Workers less than 61 years of age (with no mini- mum) on January 1, 1937, are potentially eligible for the benefits of the program—monthly retire- ment benefits or a lump-sum payment at age 65, depending on eligibility; a death payment before age 65, or an adjusted death payment after age 65. In using figures for age distribution of workers in estimates of coverage it must be remembered that some doubt as to exact age is inescapable, both in much of the census data and in employers’ records. Age also influences the earning power of workers and affects the basis for age distribution of earnings.

Employment.—The provisions of the Social Security Act exclude from coverage all self-employ- ment; work as an employer or member of a part- nership; employment in agriculture; domestic service in a private home; casual labor not in the course of the employer’s trade or business; work as officer or member of the crew of vessels; govern- ment employment—Federal, State, or local—and employment for governmental instrumentalities; service for certain educational, scientific, relig- ious, or philanthropic organizations. Railroad

employees and certain other groups are also excluded from coverage under the Social Security Act by a provision of the Railroad Retirement Act. Substantially all other paid work performed within the United States is covered, beginning January 1, 1937, except when performed after the age of 65.

The fact of employment has been tabulated in certain census material. Since the census treats employment data in the aggregate without refer- ence to the specific requirements of the Social Security Act, census figures require considerable revision to adapt them to those requirements. It is to be hoped that the 1940 census will meet social security needs more directly. There will gradually be developed records of employment as a result of wage reports filed in connection with tax payments under title VIII. Exact limits of the employment periods are not therein stated.

Wage Receipts—Reports are required of em- ployers liable to taxation under the Social Security Act, showing the total amount of tax payments and indicating the individual wages on which the taxes are based. These reports in turn serve for the accumulation of wage credits for all types of Federal old-age benefits. Subject to previously stated limitations, these accumulated wage re- ceipts will eventually furnish data pertinent to the estimates of probable benefit payments. They will doubtless show significant changes in wage rates over the years.

It seems probable that employees who change employment frequently or who work for employers lacking adequate cost-accounting machinery may question the tabulated earnings credited to them by employer reports. They may, at least at the time of claim for payment, bring in evidence to substantiate additional wage credits. Some effort might well be expended, possibly every 5 years, to obtain employee acceptance of the accuracy of recorded wage credits, limiting such wage-record adjustment to a relatively short period.

Since the old-age benefits program in a sense parallels the coverage and records of unemploy- ment compensation and other programs, similarly based upon wages, some coordination between the different social insurances may develop certain additional checks upon earnings reports. Such records are not yet available in any comprehensive form.

Social Security

Prospective Coverage

At least during these early years of operation, estimates of ultimate costs will depend to a greater extent upon problematic future earnings than upon past tabulated earnings. The discussion above has been limited to the consideration of informa- tion available on existing coverage. So far the available records are still very limited. Over the last 50 years the general trend of dollar wages has been upward. Many jobs in recent years have paid some three times what they would appar- ently have paid in 1890. Many jobs of the present day have no prototypes in the 1890 industrial scene. This upward trend was one of Sweden’s concerns when revamping her pension plan re- cently. Is it reasonable to assume that we are ready to abandon the struggle for more dollars per annum per capita and instead to attempt to increase their purchasing power? Prospective earnings and the addition of increased numbers of workers to those now covered will depend upon many factors, whose advance measurement can be but crude at best.

Earning Power.—All the elements that go into the determination of earning power, such as age, sex, race, education, industry, occupation, are factors which must be considered in estimating potential future earnings. Steadiness of employ- ment and wage rates, linking future to past earn- ings, must be considered on the basis of the best available evidence. Whatever arbitrary reason- ing is adopted, the margin of error will probably be large.

The influence of the employment service and of unemployment compensation agencies, policies es- tablished by employers and labor unions, and other similar community attitudes, might result in either lower or higher dollar rates of pay over periods of time for a large number of people. So high a standard of wage rates might conceivably be maintained as to bar many semicompetent workers from regular jobs. This tendency would require supplementary programs of straight relief for the least competent workers or of work relief at a low wage scale for others.

Many people are now unable to work because of inadequate physical ability; others because of a long period of out-of-work status and a possible lack of mental adaptability under such circum- stances. The extent and effectiveness of voca- tional rehabilitation, both from the standpoint of physical and mental health and training for spe-

Bulletin, July 1938

81468—3s 2

cific types of gainful employment, are forces which should have a marked effect upon the work rela- tionships of the future.

The Movements Between Covered and Noncovered Employment.—The wide shifts of employment op- portunities resulting from radical changes in agri- culture, commerce, industry, governmental super- vision, and so forth, indicate very large prospec- tive transfers in the future, as in the past, from one type of employment to another. Some evidence of this movement will accumulate from the old-age insurance wage records. Other evidence must be drawn from a census of employment and from such data as have been and will continue to be accumu- lated in the Bureau of Labor Statistics and other statistical agencies. These transfers, added to other forces, may well double initial coverage within a quarter century, largely increasing the financial requirements of later benefits. Estimates of coverage, effective by 1980, have been made, ranging from 35 million to 75 million.

The existence of the Social Security Act may possibly enhance the attractiveness of certain types of jobs to married women and even to the pre- viously self-employed. Even without additional work opportunities, a very large number of people may perform intermittent work sufficient in amount to qualify them for the minimum monthly old-age benefit of $10. Such work would have the same effect in increasing cost as transfers of work- ers from noncovered to covered employment, for both emphasize the chance of short-term employ- ment, which has a high weighting in the old-age benefit formula.

Changes in Definitions and Boundaries.—It seems probable that many administrative and legislative changes may affect cost estimates. For example, many of the present boundaries between covered and noncovered employment may be shifted. The chance may be lessened that wages from several different jobs in the same year may greatly increase the size of lump- sum benefits and death payments. The limits in the three-term formula of benefits may be changed so that a different relationship may exist in the future between credited wages and benefit scales. These or similar changes may also affect the minimum age at which benefits are paid and the very attitude towards work after payments have begun. Even as the prac- tical insurance actuary must remain in close touch with changing trends in his own business,

so must the administration of social insurance

recognize not merely the possibility but the virtual certainty of such modifications.

Probabilities of Survival

Most established mortality tables furnish in- adequate indications of the probability of sur- viving. They are commonly constructed from the experience at all attained ages over a very brief period of time. The death rates among men of 80, for example, represent the death rates among survivors from the exigencies of life over the previous 80 years. The death rates among infants in a recent table are almost entirely the result of very modern conditions. Such tables fail to represent what we expect will be the future mortality among those who will be respectively 80, 60, and 0 years of age in such a far-off time as 1980.

Survival to Age 65

Chances of survival have been set down at quinquennial ages from 15 to 60 to indicate what, according to certain tables selected, are the so- called “expected probabilities” of reaching age 65. The United States life tables of 1900-02 show that of 1,000 persons aged 20, 514 will “probably” survive to age 65, while the table for 1933 shows that 614 will reach age 65, and the hypothetical table, that 769 will attain that age. In this range there is a difference of nearly 50 percent of the lowest “‘probability.” At age 45 the respective ratios of survival to age 65 are 639, 686, and 824, per 1,000, a range of nearly 30 percent.

In considering annuity instead of insurance costs it is desirable to use a mortality table which really contemplates the most plausible situation in regard to life contingencies over the future. Such a forecast table would indicate more truly the expectancy of survival for the person now 80, for the person now 60, and for the infant. Such a table prepared for persons now aged 20 shows a rate of 713 per 1,000 surviving to 65, an increase of more than 15 percent over that indicated by the 1933 tables. The work of preparing ‘“fore- cast”’ tables introduces methods slightly different from those utilized in the preparation of the old “experience” tables. Terminology concerning what we “expect”? would be more correct in con- nection with forecast than with experience tables.

It will not be a single life table which is thus pre- pared, but rather a series of tables somewhat after the fashion of the select portions of existing life tables which cover the brief period following se- lection. We are not even sure of the mortality rates at various ages in the past. Extrapolation from them may develop cumulative errors. Our

Chart I.—Life insurance experience contrasted with population experience and Dublin’s Hypothetical Table: Percent of specified age who reach 65 '

EJ Americon Experience P4933 US Experience mo Dubtins Mypothetico/ Forecost

PCOCENT suPvIvING TO AGE 68

OY AS totetatece:

1 See tables 1, 2, and 3 for sources of data.

records of vital statistics are known to be some- what inaccurate and incomplete in spite of efforts to avoid these limitations. There has developed a technique of population extrapolation from past apparent trends with varying understanding of the component forces. Under such methods, presenting low, medium, and high estimates, there is a wide range among the various estimates of the age 65 survivors of 1980. There can be a large cumulative effect of slight variations between estimated and actual forces working over a period of 40 years.

A number of factors which enter into estimates of survival and their influences on costs are dis- cussed in the following paragraphs.

Diminishing Death Rates and Their Ultimate Effect—Improved medical science may keep alive a large number of physically unfit persons for a time, thereby adding damaged lives at higher ages. It is commonly hoped that the work of sickness prevention or health conservation will add much to the probability of survival by protecting large areas of the population from scourges of one sort and another. It may permit not merely a post- ponement of death but permanent improvement in vitality sufficient to reduce death rates steadily even at the higher ages, where improvement has not yet been very marked. Through improved

Social Security

diagnosis the medical profession is steadily gaining in its ability to analyze what may be wrong with the human body and thus to clear the way for proper treatment and perhaps alleviate pandem- ics. The pneumonias, for example, can now be recognized more readily. A greater knowledge permits correct treatment to be promptly applied. It is conceivable that a large increase in survival may develop from this greater knowledge of the human system.

Accident Prevention—At the same time that gains have been made in general health conditions, an increasing number of mechanical devices have been developed for common use, such as the auto- mobile and the airplane. These produce added accidental causes of death which must then be analyzed with the goal of reducing accident frequency through a more thorough understand- ing and mastery of the equipment.

Weight of Death Payments vs. Life Benefits — The value of the death payments under the old- age insurance program is decidedly smaller than the value of old-age annuity benefits. Reduction in number of death payments would follow im- proving mortality. This gain, however, would not balance the greater outlay to a larger number of annuitants who would survive because of im- proved mortality. Improving mortality, which with the life insurance company has heretofore been so much on the side of safety, becomes a debit in relation to Federal old-age insurance cost. When 80 to 85 percent of the benefits are retire- ment annuities rather than death settlements, improving mortality becomes a cost liability.

Survival After 65

Whelpton and Thompson’s' studies of future population growth have progressed to the point where from past mortality rates future mortality rates have been reasonably estimated. These show such marked possible reductions in the death rates from ages 65 to 80 as to add perceptibly to the prospecfive duration of monthly benefits under the Social Security Act. Elderton had assumed in his forecast tables? that eventually

! Thompson, Warren 8. and Whelpton, P. K. “The Population of the Nation.” Recent Social Trends in the United States; Report of the President's Research Committee on Social Trends. New York and London, McGraw-Hill Book Company, Inc. 1934. Ch. 1, pp. 1-58. Whelpton, P. K. “An Em- pirical Method of Calculating Future Population.” Journal of the American Statistical Association. Vol. 31, No. 195 (September 1936), pp. 457-473.

2 Elston, J. 8S. ‘‘Sources and Characteristics of the Principal Mortality

Tables.’ Actuarial Studies No. 1. New York, The Actuarial Society of America, 1932, pp. 115-116.

Bulletin, July 1938

mortality improvement would become markedly effective at the advanced ages. An increased life expectancy of as much as 20 percent could be deduced from some of the Whelpton-Thompson assumptions above age 65.

Continued Employment After Age 65

Deferred Retirement

Monthly benefits under the Social Security Act differ from the customary deferred annuity of the private insurance company, payable upon the attainment of a given age, in that they are subject to reduction when