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Social security and two-earner households

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  • Kaygusuz, Remzi

Abstract

In the past decades, elimination of the pay-as-you-go system in U.S. has been extensively discussed and studied. Such an elimination would also eliminate the intragenerational redistribution done by the following policies of social security. Due to spousal and survivor׳s benefit provisions, US Social Security system redistributes (mostly) to single-earner married households. Since retirement benefits are a concave function of past mean earnings, the system redistributes from high earners to low earners. Finally, existence of a cap on social security taxable earnings makes the system regressive. This paper quantifies redistributive, labor supply, and welfare implications of these policies using a general equilibrium life-cycle model. Agents start out as permanently married or single and with education levels and wage profiles, where the latter depend both on education and gender. The household is the decision maker and decides on labor supply of its member(s) and saving. Elimination of these policies results in a 5.5% rise in labor force participation of married females, while increasing aggregate welfare by 0.4%. A majority of households experience positive gains in welfare. Single-earner married households incur large welfare losses (as big as 1.1%), whereas two-earner households with high skilled spouses experience substantial welfare gains (as big as 1.9%).

Suggested Citation

  • Kaygusuz, Remzi, 2015. "Social security and two-earner households," Journal of Economic Dynamics and Control, Elsevier, vol. 59(C), pages 163-178.
  • Handle: RePEc:eee:dyncon:v:59:y:2015:i:c:p:163-178
    DOI: 10.1016/j.jedc.2015.07.006
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    Cited by:

    1. Cagri S. Kumru & John Piggott, 2017. "Optimal Capital Income Taxation with Means-tested Benefits," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(3), pages 227-262, July.
    2. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2008. "Taxation, Aggregates and the Household," CEPR Discussion Papers 6702, C.E.P.R. Discussion Papers.
    3. Fehr, Hans & Kallweit, Manuel & Kindermann, Fabian, 2017. "Families and social security," European Economic Review, Elsevier, vol. 91(C), pages 30-56.
    4. Shinichi Nishiyama, 2010. "The Joint Labor Supply Decision of Married Couples and the Social Security Pension System," Working Papers wp229, University of Michigan, Michigan Retirement Research Center.
    5. Alfonso R. Sanchez Martín & Virginia SanchezMarcos, 2010. "Demographic Change and Pension Reform in Spain: An Assessment in a Two-Earner, OLG Model," Fiscal Studies, Institute for Fiscal Studies, vol. 31(3), pages 405-452, September.
    6. Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2013. "Childcare Subsidies and Household Labor Supply," CEPR Discussion Papers 9775, C.E.P.R. Discussion Papers.
    7. Groneck, Max & Schön, Matthias & Wallenius, Johanna, 2016. "You Better Get Married! Marital Status and Intra-Generational Redistribution of Social Security," Annual Conference 2016 (Augsburg): Demographic Change 145801, Verein für Socialpolitik / German Economic Association.
    8. Groneck, Max & Wallenius, Johanna, 2017. "It Sucks to Be Single! Marital Status and Redistribution of Social Security," SSE Working Paper Series in Economics 2017:1, Stockholm School of Economics.
    9. Bagis, Bilal, 2017. "Macroeconomic Implications of Changes in Social Security Rules," MPRA Paper 84051, University Library of Munich, Germany.

    More about this item

    Keywords

    Social security; Two-earner households; Labor force participation;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure

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