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The farm, the city, and the emergence of social security

  • Elizabeth Caucutt
  • Thomas Cooley
  • Nezih Guner


We study the social, demographic and economic origins of social security. The data for the U.S. and for a cross section of countries suggest that urbanization and industrialization are associated with the rise of social insurance. We describe an OLG model in which demographics, technology, and social security are linked together in a political economy equilibrium. In the model economy, there are two locations (sectors), the farm (agricultural) and the city (industrial) and the decision to migrate from rural to urban locations is endogenous and linked to productivity differences between the two locations and survival probabilities. Farmers rely on land inheritance for their old age and do not support a pay-as-you-go social security system. With structural change, people migrate to the city, the land loses its importance and support for social security arises. We show that a calibrated version of this economy, where social security taxes are determined by majority voting, is consistent with the historical transformation in the United States. Copyright Springer Science+Business Media New York 2013

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Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 18 (2013)
Issue (Month): 1 (March)
Pages: 1-32

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Handle: RePEc:kap:jecgro:v:18:y:2013:i:1:p:1-32
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