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The Farm, the City, and the Emergence of Social Security

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Author Info

  • Caucutt, Elizabeth M.

    ()
    (Western University, Canada)

  • Cooley, Thomas F.

    ()
    (New York University)

  • Guner, Nezih

    ()
    (MOVE, Barcelona)

Abstract

In this paper we study the social, demographic and economic origins of social security. The data for the U.S. and for a cross section of countries make it clear that urbanization and industrialization are strongly associated with the rise of social insurance. 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. In the model social security emerges and is sustained over time as a political and economic equilibrium. Modeling the political economy of social security within a model of structural change leads to a rich economic environment in which the median voter is identified by both age and location.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3731.

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Length: 55 pages
Date of creation: Sep 2008
Date of revision:
Publication status: published in: Journal of Economic Growth, 2103, 18(1), 1-32
Handle: RePEc:iza:izadps:dp3731

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Keywords: structural change; political economy; social security; migration;

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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. Perotti, Enrico & Schwienbacher, Armin, 2009. "The political origin of pension funding," Journal of Financial Intermediation, Elsevier, vol. 18(3), pages 384-404, July.
  3. 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.
  4. repec:dgr:uvatin:2007004 is not listed on IDEAS
  5. Alessandro Balestrino & Cinzia Ciardi & Claudio Mammini, 2008. "On the Causes and Consequences of Divorce," CESifo Working Paper Series 2347, CESifo Group Munich.
  6. Vincenzo Galasso & Paola Profeta, 2013. "From Family Culture to Welfare State Design," CHILD Working Papers Series 14, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA.
  7. Rizzo, Giuseppe, 2009. "Fertility and pension systems," MPRA Paper 12998, University Library of Munich, Germany.

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