Between the Lines: Social Security’s economic punch

According to South Dakota Department of Labor statistics, Clay County experienced its lowest unemployment rate of the entire year just two months ago. In the latest figures available, for September 2011, the county's unemployment rate dropped to 3.3 percent.

And, in that month, of the total county workforce of 7,500 people, only 225 were unemployed. That's good news, I guess, unless you're one of those unemployed.

Let's pretend, however, that things aren't as great as they appear. And remember, this is pretend, so I'm going to throw out some "pretend" data and hope it all eventually makes sense.

Let's pretend Clay County just lost 50 jobs. And each job paid $30,000 annually.

This "pretend" news arrives at the same time of a very "real" development: Social Security recipients across the nation just recently got the news that they'll get a 3.6 percent cost-of-living increase in their checks in January.

Which of those developments is more important if you live in Clay County?

Here's one way to think about it:

If we did lose 50 jobs that each paid $30,000, then there's $150,000 a year less washing around the county – money not getting spent at the car dealerships or the grocery stores or in Main Street shops.

But that cost-of-living increase for the 1,765 Social Security recipients in Clay County could add up to about $900,000 in 2012, a lot of which will get spent on groceries, gas and even cars.

Obviously jobs matter, and there's a lot more to a local economy than this simple comparison (and right now I'm praying that my math is correct), but it does point out that the value of Social Security payments can be huge and sometimes underappreciated, especially in rural areas.

According to Bill Bishop and Roberto Gallardo, authors of "The Daily Yonder" rural website, if Clay County residents didn't receive their monthly payments from the Social Security Administration, 4.1 percent of total personal income in the county would be lost. That totaled $22,877,131 in 2009.

Clay County is less dependent on Social Security payments than is the rest of the country. Nationally, 5.5 percent of total personal income in 2009 came from Social Security payments. In South Dakota, 5.8 percent of all income comes from these payments.

In Clay County, 1,765 people receive some form of Social Security payment, either an old age pension, a survivor benefit or a disability check, according to the Social Security Administration and the Bureau of Economic Analysis. Social Security beneficiaries represent 13.1 percent of the total county population.

In rural counties and counties such as Clay with its small communities, Social Security payments constitute a much larger chunk of the local economy than in urban areas, according to Bishop and Gallardo. A greater percentage of people in rural America receive these payments than in urban counties, and so rural counties have higher average payments per resident.

"In many rural places, Social Security is a very critical element of the local economic base," said Peter Nelson, a geographer at Middlebury College in Vermont. "It's less important to a place like Los Angeles because there is so much additional economic activity going on there."

Total Social Security payments in Clay County amounted to $1,696 per person in 2009. The national average was $2,199 per person and in South Dakota it was $2,277.

Social Security payments in Clay County have been changing as a proportion of total income. These payments amounted to 4.3 percent of total income in 1970, 6.2 percent in 1980, 6.6 percent in 1990, 4.6 percent in 2000 and 4.1 percent in 2009.

Social Security payments are particularly important to rural counties and small cities because the money is largely spent in the community. "The seniors who get these payments are primarily going to spend their money locally," said Mark Partridge, a rural economist at Ohio State University. "And they are a key reason why some communities are still viable.  If this money dried up, there wouldn't be a lot of these small towns."

Social Security payments amount to 5 percent of the total income in urban counties. In places like Clay County, these payments amount to 8.2 percent of total income, and in rural counties, Social Security totals 9.3 percent of all personal income. More than one out of five Americans living in small cities and rural counties received some kind of Social Security check in 2009.

Judith Stallmann, an economist at the University of Missouri, explained that Social Security payments help generate the sales that keep a rural business afloat.

"We find that Social Security income can be the difference between success and failure for some local businesses," Stallmann said. "If you took away, say, 10 percent of the demand, would that local business be able to remain open? Often it's that 10 percent that keeps them going. Social Security is providing that margin."

Social Security payments go to those over the age of 62 who have filed for benefits, to survivors of insured workers and to those with disabilities. The program is mainly funded by payroll taxes. In Clay County, 74.8 percent of recipients were retirees in 2009, 12.5 percent were survivors and 13.0 percent were disabled.

Changes to Social Security are being discussed in Congress, which is looking for ways to balance the larger federal budget. If benefits are cut – or if the eligibility age is increased – rural counties and small cities would be disproportionately affected, according to Peter Nelson.

"Cuts would have a bigger negative impact on rural places, absolutely," Middlebury's Professor Nelson said. "They are more dependent on Social Security."

There are no easy fixes to what's ailing the nation's economy, and Social Security is once again being identified as an item ripe for economic reform.

According to the Congressional Budget Office, 20 percent of 2010 federal spending, $701 billion, was expected to be spent in Social Security benefits. That's almost the same as the Defense Department, and $92 billion less than Medicare and Medicaid combines. Other mandatory spending is $416 billion, or 12 percent of the total budget, leaving only $660 billion, or 19 percent of the federal budget, under quick, direct control of Congress and the president.

It doesn't take an economist to see the problem with the federal budget – the government planned to spend $3.456 trillion in 2010, but only expected income of $2.182 trillion in tax receipts, the rest added to the federal deficit.

It's easy to talk about radical changes to the Social Security system – it's a bit more difficult to picture a world in which the system must be altered to the point that it begins to have a direct negative impact on our local economy.

That's why all of us need to pay attention to the debate on Capitol Hill when it comes to Social Security and other "entitlements." Even if you're not yet receiving such benefits, the paycheck you earn may be affected.

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