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Labor Supply Responses to Social Security

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  • John Laitner

    (University of Michigan)

Abstract

The President’s Commission to Strengthen Social Security suggests three plans for reforming Social Security. These plans divert various amounts of the payroll tax to a personal account if the worker chooses to participate in the account. In return, Social Security benefits are offset using accounts with real returns ranging from 2% to 3.5%. In addition, the second and third plans proposed by the Commission include features that are designed to balance the finances of the system by reducing the rate of growth of benefits relative to the levels prescribed under current law, to make the system more redistributive, and to make other changes. When “personal accounts ” are mentioned, most people think of accounts that are in some sense separate and shielded from the uncertainties of the Social Security system. That is not the case for the personal accounts proposed by the Commission. Because the participating individual is not entitled to the principal in the account, participating in the account does not shield the individual from the political risks of being in the Social Security system. As a result, the reduction in political risk fostered by the Commission’s proposals comes mainly from the improvement in the financial status of the system fostered by other provisions of the recommended plans. Measures to improve the benefits of low-income individuals, widows and widowers and to enhance the rewards to retirement all create incentive effects that are also discussed in the paper.

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Bibliographic Info

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp050.

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Length: 26 pages
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:mrr:papers:wp050

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References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. John Laitner, 2001. "Wealth, Inequality, and Altruistic Bequests," Working Papers wp017, University of Michigan, Michigan Retirement Research Center.
  2. repec:att:wimass:9430 is not listed on IDEAS
  3. Michael Hurd & Susann Rohwedder, 2003. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," Working Papers 03-12, RAND Corporation Publications Department.
  4. Lumsdaine, Robin L. & Mitchell, Olivia S., 1999. "New developments in the economic analysis of retirement," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 49, pages 3261-3307 Elsevier.
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  7. Michael Hurd & James P. Smith & Julie M. Zissimopoulos, 2003. "The Effects of Subjective Survival on Retirements and Social Security Claiming," Working Papers 03-11, RAND Corporation Publications Department.
  8. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, vol. 88(4), pages 769-88, September.
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  14. Charles Brown, 2003. "Early Retirement Windows," Working Papers wp064, University of Michigan, Michigan Retirement Research Center.
  15. Laitner, John, 2001. "Secular Changes in Wealth Inequality and Inheritance," Economic Journal, Royal Economic Society, vol. 111(474), pages 691-721, October.
  16. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 537-79, May.
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  18. Alan L. Gustman & Thomas L. Steinmeier, 1983. "A Structural Retirement Model," NBER Working Papers 1237, National Bureau of Economic Research, Inc.
  19. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
  20. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  21. Gokhale, Jagadeesh & Kotlikoff, Laurence J. & Sefton, James & Weale, Martin, 2001. "Simulating the transmission of wealth inequality via bequests," Journal of Public Economics, Elsevier, vol. 79(1), pages 93-128, January.
  22. John Rust & Christopher Phelan, 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Public Economics 9406005, EconWPA, revised 06 Jul 1994.
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Cited by:
  1. Shinichi Nishiyama, 2004. "Analyzing an Aging Population--A Dynamic General Equilibrium Approach: Technical Paper 2004-03," Working Papers 15191, Congressional Budget Office.
  2. Shinichi Nishiyama, 2004. "Social Security Reform in an Economy with Population Aging," Econometric Society 2004 North American Winter Meetings 582, Econometric Society.
  3. John Laitner, 2004. "Precautionary Saving Over the Lifecycle," Working Papers wp083, University of Michigan, Michigan Retirement Research Center.

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