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The Effect of Social Security, Demography and Technology on Retirement

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  • Ferreira, Pedro Cavalcanti Gomes
  • Santos, Marcelo Rodrigues dos

Abstract

This article investigates the causes in the reduction of labor force participation ofthe old. We argue that the changes in social security policy, in technology and indemography may account for most of the changes in retirement over the second partof the last century in the U.S. economy. We develop a dynamic general equilibriummodel with endogenous retirement that embeds social security legislation. The modelis able to match very closely the increase in the retirement rate of males aged 65 andolder. It also quanti es the isolated impact on retirement and on the solvency of thesocial security system of the di¤erent factors. The model suggests that technologicaland demographic changes had a strong in uence on retirement, so that it would haveincreased signi cantly even if the social security rules had not changed. However, asthe latter became much more generous in the past, changes in social security policycan account not only for a sizeable part of the expansion of retirement, but also for themost of the observed increase in the social security expenses as a share of GDP.

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Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 683.

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Date of creation: 08 Dec 2008
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Handle: RePEc:fgv:epgewp:683

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