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The macroeconomic stabilisation effects of Social Security and 401(k) plans

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  • Teresa Ghilarducci
  • Joelle Saad-Lessler
  • Eloy Fisher

Abstract

This paper investigates how various retirement institutions impact the macroeconomy. We find that for every 1 percentage point increase in the output gap, net flows of various government programmes including Social Security decrease by 0.34 percentage points, while net flows of 401(k) plans increase by 0.05 percentage points. In levels, for every $1 increase in real gross domestic product, net flows from various government programmes shrink by 45 cents, whereas net flows from 401(k) plans increase by 4.6 cents. In other words, 401(k) plans reduce the automatic stabilisation impact of government programmes by 10%--15%. Moreover, we find that Social Security has a net negative effect on household consumption, while 401(k) retirement accounts work the opposite way. In fact the destabilising effect of 401(k) plans on consumption is twice as strong as the one attributed to Social Security.These results highlight a significant problem with 401(k) retirement plans and any retirement plan that is dependent on financial markets. Copyright The Author 2012. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

Suggested Citation

  • Teresa Ghilarducci & Joelle Saad-Lessler & Eloy Fisher, 2012. "The macroeconomic stabilisation effects of Social Security and 401(k) plans," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 36(1), pages 237-251.
    • Handle: RePEc:oup:cambje:v:36:y:2012:i:1:p:237-251
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    File URL: http://hdl.handle.net/10.1093/cje/ber040
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    Cited by:

    1. Fernando Bermejo & Raúl del Pozo & Pablo Moya, 2021. "Main Factors Determining the Economic Production Sustained by Public Long-Term Care Spending in Spain," IJERPH, MDPI, vol. 18(17), pages 1-18, August.
    2. Petra Došenoviæ Bonèa & Maks Tajnikar, 2018. "Austerity policies, economic growth and fiscal balance: lessons from Slovenia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(1), pages 287-308.
    3. Fischer, Georg, 2017. "The US Unemployment Insurance, a Federal-State Partnership: Relevance for Reflections at the European Level," IZA Policy Papers 129, Institute of Labor Economics (IZA).
    4. Bermejo Patón, Fernando & Febrero Paños, Eladio & Uxó González, Jorge, 2015. "La sostenibilidad del sistema español de pensiones: Una aproximación alternativa/Sustainability of the Spanish Pension System: An Alternative View," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 33, pages 783-800, Septiembr.

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