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Home production and Social Security reform

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Author Info

  • Michael Dotsey
  • Wenli Li
  • Fang Yang

Abstract

This paper incorporates home production into a dynamic general equilibrium model of overlapping generations with endogenous retirement to study Social Security reforms. As such, the model differentiates both consumption goods and labor effort according to their respective roles in home production and market activities. Using a calibrated model, we find that eliminating the current pay-as-you-go Social Security system has important implications for both labor supply and consumption decisions and that these decisions are influenced by the presence of a home production technology. Comparing our benchmark economy to one with differentiated goods but no home production, we find that eliminating Social Security benefits generates larger welfare gains in the presence of home production. This result is due to the self insurance aspects generated by the presence of home production. Comparing our economy to a one-good economy without home production, we show that the welfare gains of eliminating Social Security are magnified even further. These policy analyses suggest the importance of modeling home production and distinguishing between both time use and consumption goods depending on whether they are involved in market or home production.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 12-5.

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Date of creation: 2012
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Handle: RePEc:fip:fedpwp:12-5

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Related research

Keywords: Housing ; Social security ; Labor supply;

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References

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  1. Eric French, 2005. "The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 395-427.
  2. Kaiji Chen, 2010. "A Life-Cycle Analysis of Social Security with Housing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 597-615, July.
  3. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1461-1489, October.
  4. Shinichi Nishiyama & Kent Smetters, 2005. "Does Social Security Privatization Produce Efficiency Gains?," Working Papers wp106, University of Michigan, Michigan Retirement Research Center.
  5. Luisa Fuster, 1999. "Is Altruism Important for Understanding the Long-Run Effects of Social Security?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 616-637, July.
  6. Michael Dotsey & Wenli Li & Fang Yang, 2010. "Consumption and time use over the life cycle," Working Papers 10-37, Federal Reserve Bank of Philadelphia.
  7. Yongsung Chang & Andreas Hornstein, 2006. "Home production," Working Paper 06-04, Federal Reserve Bank of Richmond.
  8. repec:bla:restud:v:74:y:2007:i:1:p:113-145 is not listed on IDEAS
  9. Michael Abbott & Orley Ashenfelter, 1974. "Labor Supply, Commodity Demand, and the Allocation of Time," Working Papers 437, Princeton University, Department of Economics, Industrial Relations Section..
  10. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
  11. Mark Huggett & Gustavo Ventura, 1999. "On the Distributional Effects of Social Security Reform," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 498-531, July.
  12. Luisa Fuster & Ayse Imrohoroglu & Selahattin Imrohoroglu, 2003. "A welfare analysis of social security in a dynastic framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1247-1274, November.
  13. Richard Rogerson & Johanna Wallenius, 2009. "Retirement in a Life Cycle Model of Labor Supply with Home Production," Working Papers wp205, University of Michigan, Michigan Retirement Research Center.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Home production and Social Security reform
    by Christian Zimmermann in NEP-DGE blog on 2012-03-23 04:03:32

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