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

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  • Elizabeth M. Caucutt
  • Thomas F. Cooley
  • Nezih Guner

Abstract

During the period from 1880 to 1950, publicly managed retirement security programs became an important part of the social fabric in most advanced economies. In this paper we study the social, demographic and economic origins of social security. 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, and social security emerges.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12854.

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Date of creation: Jan 2007
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Publication status: published as Elizabeth Caucutt & Thomas Cooley & Nezih Guner, 2013. "The farm, the city, and the emergence of social security," Journal of Economic Growth, Springer, vol. 18(1), pages 1-32, March.
Handle: RePEc:nbr:nberwo:12854

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Cited by:
  1. Vincenzo Galasso & Paola Profeta, 2013. "From Family Culture to Welfare State Design," CHILD Working Papers Series, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA 14, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA.
  2. Vincenzo Galasso & Paola Profeta, 2012. "When the State Mirrors the Family: The Design of Pension Systems," Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS, Condorcet Center for political Economy 2012-04-ccr, Condorcet Center for political Economy.
  3. Jialu Liu, 2011. "Human capital, migration and rural entrepreneurship in China," Indian Growth and Development Review, Emerald Group Publishing, Emerald Group Publishing, vol. 4(2), pages 100-122, September.
  4. Enrico Perotti & Armin Schwienbacher, 2007. "The Political Origin of Pension Funding," Tinbergen Institute Discussion Papers 07-004/2, Tinbergen Institute, revised 30 Oct 2008.
  5. repec:dgr:uvatin:2007004 is not listed on IDEAS
  6. Balestrino, Alessandro & Ciardi, Cinzia & Mammini, Claudio, 2013. "On the causes and consequences of divorce," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 45(C), pages 1-9.
  7. Rizzo, Giuseppe, 2009. "Fertility and pension systems," MPRA Paper 12998, University Library of Munich, Germany.

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