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Social Security Incentives and Human Capital Investment

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  • Morten I. Lau
  • Panu Poutvaara

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Abstract

While the effect of social security systems on retirement decisions has received much attention, the impact of these systems on individuals’ incentives to invest in their human capital has not been analyzed. We integrate human capital investment and retirement decisions in a simple analytical life-cycle model with full certainty and investigate how different social security schemes may a¤ect welfare, human capital investment and labor supply. We analyze and compare three different social security systems. Our results suggest that actuarial adjustment and the link between individual social security contributions and benefits increase human capital investment and postpone retirement.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2001/wp-cesifo-2001-03/cesifo_wp438.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 438.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_438

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Keywords: Social security; retirement; education; human capital; labor supply;

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References

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  1. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
  2. Cremer, Helmuth & Pestieau, Pierre, 2002. "The Double Dividend of Postponing Retirement," IDEI Working Papers 144, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2003.
  3. Svend E. Hougaard Jensen & Morten I. Lau & Panu Poutvaara, 2004. "Efficiency and Equity Aspects of Alternative Social Security Rules," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(3), pages 325-, September.
  4. Boskin, Michael J, 1977. "Social Security and Retirement Decisions," Economic Inquiry, Western Economic Association International, vol. 15(1), pages 1-25, January.
  5. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S11-44, August.
  6. Borsch-Supan, Axel, 2000. "Incentive effects of social security on labor force participation: evidence in Germany and across Europe," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 25-49, October.
  7. Poutvaara, Panu, 2000. "Education, mobility of labour and tax competition," Munich Reprints in Economics 19303, University of Munich, Department of Economics.
  8. Diamond, Peter A & Mirrlees, James A, 1986. " Payroll-Tax Financed Social Insurance with Variable Retirement," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 25-50.
  9. Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Munich Reprints in Economics 19854, University of Munich, Department of Economics.
  10. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-88, September.
  11. Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, vol. 63(3), pages 311-329, February.
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Cited by:
  1. Poutvaara, Panu, 2007. "Social security incentives, human capital investment and mobility of labor," Munich Reprints in Economics 19804, University of Munich, Department of Economics.
  2. Walter H. Fisher & Christian Keuschnigg, 2007. "Pension Reform and Labor Market Incentives," CESifo Working Paper Series 2057, CESifo Group Munich.
  3. Benos, Nikos, 2009. "Fiscal policy and economic growth: empirical evidence from EU countries," MPRA Paper 19174, University Library of Munich, Germany.
  4. Alexander Ludwig & Thomas Schelkle & Edgar Vogel, 2011. "Online Appendix to "Demographic Change, Human Capital and Welfare"," Technical Appendices 08-168, Review of Economic Dynamics.
  5. repec:pdn:wpaper:4 is not listed on IDEAS
  6. Tim Krieger & Thomas Lange, 2012. "Education, Life Expectancy and Pension Reform," Hacienda Pública Española, IEF, vol. 202(3), pages 31-55, September.
  7. Vogel, Edgar & Ludwig, Alexander & Börsch-Supan, Axel, 2011. "Aging and Pension Reform in a Two-Region World: The Role of Human Capital," MEA discussion paper series 11246, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  8. Ludwig, Alexander & Schelkle, Thomas & Vogel, Edgar, 2010. "Demographic Change, Human Capital and Welfare," MEA discussion paper series 10196, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  9. Nikos Benos, 2005. "Fiscal Policy and Economic Growth: Empirical Evidence from OECD," University of Cyprus Working Papers in Economics 1-2005, University of Cyprus Department of Economics.

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