Posted by: Josh Lehner | December 20, 2022

Social Security’s Macro Impact (Maps of the Week)

Starting in January, Social Security benefits will increase by 8.7 percent, the largest cost-of-living-adjustment in the past 40 years. Of course the large COLA is a direct result of the high inflation we have experienced in the past year. Many seniors are on fixed incomes. 3 in 10 Oregon seniors essentially rely entirely on Social Security for all of their income, and for nearly 6 in 10, Social Security makes up more than half of their income. As such this hot inflation has really impacted their budgets and hurt their ability to keep pace with the cost of living.

The good news is inflation is slowing and the COLA is accelerating. The net impact is a macro tailwind next year. In recent years, Social Security accounts for about 5.5 percent of total U.S. personal income, and 6.6 percent here in Oregon*. That means that next year’s 8.7 percent increase will boost total U.S. income by 0.5 percent and Oregon’s total income will increase by 0.6 percent. While half a percent may seem like a small number, it’s actually a significant increase. It is equivalent to adding 1.4 million jobs nationally paying the average wage, or 22,000 jobs in Oregon.

In terms of the income impacts, the biggest dollar increases will be in the locations with larger retirement-age populations. This means Portland (Multnomah) in Oregon and California nationally will see the largest increases in overall income because that’s where the largest number of people live, both young and old. However, the relative impacts, or where the local increase will be largest in percentage terms has a different pattern. Communities where the retirement population accounts for a larger share, or where per capita economic activity is generally lower, meaning transfer payments are a larger share of income to begin with, will see the biggest percentage increases. Broadly speaking, these local economies tend to be more rural than urban.

Here’s what that looks like across Oregon. Social Security in our coastal counties, and in much of Eastern Oregon account for more than 1 in 10 dollars households take home. The state’s urban areas along the I-5 corridor and across the mountains in Bend generally have a lower share of total income derived from Social Security. As such the upcoming COLA will boost aggregates incomes in Curry County on the South Coast by 1.3 percent, compared to a 0.4 percent increase in Multnomah.

The second map looks at the increase in total income by state due to the upcoming COLA. It ranges from West Virginia’s 0.9 percent increase as the largest to California’s 0.3 percent as the smallest. These relative dynamics matter in terms of the macro impacts, even if at the micro level every eligible household will receive the same percentage increase.

Overall, social security and retirement income in general are growing at an above-average pace due to demographics. However next year we will see the double effect of a fundamental increase in an aging population and larger than average increases per person due to inflation. Even if these COLA gains are playing catch-up to reality, they are a real macro boost in the year ahead.

* Note this uses total personal income excluding refundable tax credits from the BEA as to strip out the impact of the recovery rebates in the calculation.


  1. Social Security accounts for about 5.5 percent of total U.S. personal income

    Wow. Didn’t think about it prior, but kinda makes sense with the number of seniors/disabled drawing it.

    Any idea of how this gets spent (ie who benefits the most?) I gotta think food and rent and medical?

  2. Excellent charts, as always. Very informative to see the counties with high and low Social Security Income shares.

    Of course, care must be taken when discussing changes over time in average nominal incomes versus average inflation-adjusted incomes. The 8.7% SSI increase is about equal to Consumer Price Index inflation for a recent 12-month period; so those retirees will be keeping up with that CPI inflation. However, many workers over the past two years have experienced total compensation changes falling short of CPI inflation, thus resulting in real wage losses.

    We have been so used to low inflation–averaging about 2% per year during the past couple of decades–that the recent, rapid CPI inflation should jolt us into a new mode of thinking about changes in nominal economic measures including wages, taxes, and revenues.

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