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

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Author Info
Caucutt, Elizabeth M. () (University of Western Ontario)
Cooley, Thomas F. () (New York University)
Guner, Nezih () (Universidad Carlos III, Madrid)

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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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Publisher 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
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Handle: RePEc:iza:izadps:dp3731

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

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Find related papers by JEL classification:
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior

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  1. Canadian Macro Study Group
References listed on IDEAS
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