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The Farm, the City and the Emergence of Social Security

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  • Caucutt, Elizabeth
  • Cooley, Thomas F
  • Guner, Nezih

Abstract

During the period from 1880 to 1950 publicly managed retirement security programs became an important part of the social fabric in most advanced economies. In this paper we study the social, demographic and economic origins of social security. We describe a model economy in which demographics, technology, and social security are linked together. We study an economy with two locations (sectors), the farm (agricultural) and the city (industrial). The decision to migrate from rural to urban locations is endogenous and linked to productivity differences between the two locations and survival probabilities. Furthermore, the level of social security is determined by majority voting. We show that a calibrated version of this economy is consistent with the historical transformation in the United States. Initially a majority of voters live on the farm and do not want to implement social security. Once a majority of the voters move to the city, the median voter prefers a positive social security tax, and social security emerges.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6131.

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Date of creation: Feb 2007
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Handle: RePEc:cpr:ceprdp:6131

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Keywords: migration; political economy; social security;

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Cited by:
  1. Vincenzo Galasso & Paola Profeta, 2010. "When the State Mirrors the Family: The Design of Pension Systems," CESifo Working Paper Series 3191, CESifo Group Munich.
  2. Rizzo, Giuseppe, 2009. "Fertility and pension systems," MPRA Paper 12998, University Library of Munich, Germany.
  3. Perotti, Enrico & Schwienbacher, Armin, 2009. "The political origin of pension funding," Journal of Financial Intermediation, Elsevier, vol. 18(3), pages 384-404, July.
  4. Jialu Liu, 2011. "Human capital, migration and rural entrepreneurship in China," Indian Growth and Development Review, Emerald Group Publishing, vol. 4(2), pages 100-122, September.
  5. Enrico Perotti & Armin Schwienbacher, 2007. "The Political Origin of Pension Funding," Tinbergen Institute Discussion Papers 07-004/2, Tinbergen Institute, revised 30 Oct 2008.

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