IDEAS home Printed from https://ideas.repec.org/p/bge/wpaper/672.html
   My bibliography  Save this paper

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

Author

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

Abstract

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.

Suggested Citation

  • Elizabeth M. Caucutt & Thomas F. Cooley & Nezih Guner, 2012. "The Farm, the City, and the Emergence of Social Security," Working Papers 672, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:672
    as

    Download full text from publisher

    File URL: http://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/672.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Raleigh Barlowe & John F. Timmons, 1950. "What Has Happened to the Agricultural Ladder?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 32(1), pages 30-47.
    2. Karen A. Kopecky, 2011. "The Trend In Retirement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 287-316, May.
    3. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2005. "A Positive Theory Of Geographic Mobility And Social Insurance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 263-303, February.
    4. Perotti, Enrico & Schwienbacher, Armin, 2009. "The political origin of pension funding," Journal of Financial Intermediation, Elsevier, vol. 18(3), pages 384-404, July.
    5. Klein, Paul & Ventura, Gustavo, 2009. "Productivity differences and the dynamic effects of labor movements," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1059-1073, November.
    6. Jeremy Greenwood & Ananth Seshadri, 2002. "The U.S. Demographic Transition," American Economic Review, American Economic Association, vol. 92(2), pages 153-159, May.
    7. Oded Galor & Omer Moav, 2000. "Das Human Kapital," Working Papers 2000-17, Brown University, Department of Economics.
    8. Corbae, Dean & D'Erasmo, Pablo & Kuruscu, Burhanettin, 2009. "Politico-economic consequences of rising wage inequality," Journal of Monetary Economics, Elsevier, vol. 56(1), pages 43-61, January.
    9. Parente, Stephen L. & Prescott, Edward C., 2005. "A Unified Theory of the Evolution of International Income Levels," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 21, pages 1371-1416 Elsevier.
    10. Jeremy Greenwood & Gokce Uysal, 2005. "New Goods and the Transition to a New Economy," Journal of Economic Growth, Springer, vol. 10(2), pages 99-134, June.
    11. repec:mes:challe:v:28:y:1985:i:4:p:50-53 is not listed on IDEAS
    12. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2003. "The Survival of the Welfare State," American Economic Review, American Economic Association, vol. 93(1), pages 87-112, March.
    13. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," Review of Economic Studies, Oxford University Press, vol. 68(4), pages 869-882.
    14. Oded Galor & Omer Moav & Dietrich Vollrath, 2009. "Inequality in Landownership, the Emergence of Human-Capital Promoting Institutions, and the Great Divergence," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 143-179.
    15. Lindert Peter H., 1994. "The Rise of Social Spending, 1880-1930," Explorations in Economic History, Elsevier, vol. 31(1), pages 1-37, January.
    16. Oded Galor & Omer Moav, 2006. "Das Human-Kapital: A Theory of the Demise of the Class Structure," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 85-117.
    17. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
    18. Michael R. Haines, 1994. "Estimated Life Tables for the United States, 1850-1900," NBER Historical Working Papers 0059, National Bureau of Economic Research, Inc.
    19. James D. Smith, 1980. "Modeling the Distribution and Intergenerational Transmission of Wealth," NBER Books, National Bureau of Economic Research, Inc, number smit80-1.
    20. Jeffrey A. Miron & David N. Weil, 1998. "The Genesis and Evolution of Social Security," NBER Chapters,in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 297-322 National Bureau of Economic Research, Inc.
    21. John Laitner, 2000. "Structural Change and Economic Growth," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 545-561.
    22. Matthias Doepke & Fabrizio Zilibotti, 2005. "The Macroeconomics of Child Labor Regulation," American Economic Review, American Economic Association, vol. 95(5), pages 1492-1524, December.
    23. Wang, Ta-Chen, 2008. "Banks, Credit Markets, and Early American Development: A Case Study of Entry and Competition," The Journal of Economic History, Cambridge University Press, vol. 68(02), pages 438-461, June.
    24. Guillaume Vandenbroucke, 2008. "The U.S. Westward Expansion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 81-110, February.
    25. Cooley, Thomas F. & Soares, Jorge, 1996. "Will social security survive the baby boom?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 89-121, December.
    26. BOLDRIN, Michele & RUSTICHINI, Aldo, 1994. "Equilibria with Social Security," CORE Discussion Papers 1994060, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    27. Echevarria, Cristina, 1997. "Changes in Sectoral Composition Associated with Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 431-452, May.
    28. Dirk Krueger & Felix Kubler, 2006. "Pareto-Improving Social Security Reform when Financial Markets are Incomplete!?," American Economic Review, American Economic Association, vol. 96(3), pages 737-755, June.
    29. Matthias Doepke & Michèle Tertilt, 2009. "Women's Liberation: What's in It for Men?," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1541-1591.
    30. Oded Galor & David N. Weil, 1998. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition," Working Papers 98-3, Brown University, Department of Economics, revised 19 Aug 1998.
    31. Gonzales-Eiras, Martín & Niepelt, Dirk, 2004. "Sustaining Social Security," Seminar Papers 731, Stockholm University, Institute for International Economic Studies.
    32. Michele BOLDRIN & Mariacristina DE NARDI & Larry E. JONES, 2015. "Fertility and Social Security," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 81(3), pages 261-299, September.
    33. Lee Soltow, 1992. "Inequalities in the Standard of Living in the United States,1798-1875," NBER Chapters,in: American Economic Growth and Standards of Living before the Civil War, pages 121-172 National Bureau of Economic Research, Inc.
    34. Douglas Gollin & Stephen Parente & Richard Rogerson, 2002. "The Role of Agriculture in Development," American Economic Review, American Economic Association, vol. 92(2), pages 160-164, May.
    35. Matthias Doepke & Fabrizio Zilibotti, 2008. "Occupational Choice and the Spirit of Capitalism," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 747-793.
    36. Harold L. Cole & Lee E. Ohanian, 2004. "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 779-816, August.
    37. repec:cup:apsrev:v:69:y:1975:i:04:p:1299-1315_24 is not listed on IDEAS
    38. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
    39. Gary D. Hansen & Edward C. Prescott, 2002. "Malthus to Solow," American Economic Review, American Economic Association, vol. 92(4), pages 1205-1217, September.
    40. Soltow, Lee, 1982. "Male Inheritance Expectations in the United States in 1870," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 252-260, May.
    41. David N. Weil & Oded Galor, 2000. "Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond," American Economic Review, American Economic Association, vol. 90(4), pages 806-828, September.
    42. Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, January.
    43. Jose-Victor Rios-Rull & Per Krusell, 1999. "On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model," American Economic Review, American Economic Association, vol. 89(5), pages 1156-1181, December.
    44. Jeffrey G. Williamson & Peter H. Lindert, 1980. "Long-Term Trends in American Wealth Inequality," NBER Chapters,in: Modeling the Distribution and Intergenerational Transmission of Wealth, pages 9-94 National Bureau of Economic Research, Inc.
    45. Vincenzo Galasso, 1999. "The US Social Security System: What Does Political Sustainability Imply?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 698-730, July.
    46. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1997. "Politico-economic equilibrium and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 243-272, January.
    47. Gomme, Paul & Rupert, Peter, 2007. "Theory, measurement and calibration of macroeconomic models," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 460-497, March.
    48. Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January.
    49. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-388, September.
    50. Imrohoroglu, Ayse & Imrohoroglu, Selahattin & Joines, Douglas H, 1995. "A Life Cycle Analysis of Social Security," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 83-114, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Doepke, M. & Tertilt, M., 2016. "Families in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    2. Vincenzo Galasso & Paola Profeta, 2010. "When the State Mirrors the Family: The Design of Pension Systems," CESifo Working Paper Series 3191, CESifo Group Munich.
    3. Vincenzo Galasso & Paola Profeta, 2013. "From Family Culture to Welfare State Design," CHILD Working Papers Series 14, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA.
    4. 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, vol. 45(C), pages 1-9.
    5. Rizzo, Giuseppe, 2009. "Fertility and pension systems," MPRA Paper 12998, University Library of Munich, Germany.
    6. Lopez-Velasco, Armando R., 2016. "Solving dynamic inefficiency with politically sustainable guest worker programs," Economics Letters, Elsevier, vol. 148(C), pages 1-4.
    7. Jialu Liu, 2011. "Human capital, migration and rural entrepreneurship in China," Indian Growth and Development Review, Emerald Group Publishing, vol. 4(2), pages 100-122, September.
    8. Peter Egger & Doina Radulescu & Nora Strecker, 2017. "On the spread of social protection systems," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(4), pages 550-574, August.
    9. Perotti, Enrico & Schwienbacher, Armin, 2009. "The political origin of pension funding," Journal of Financial Intermediation, Elsevier, vol. 18(3), pages 384-404, July.

    More about this item

    Keywords

    Social Security; political economy; structural change; Migration;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bge:wpaper:672. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruno Guallar). General contact details of provider: http://edirc.repec.org/data/bargses.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.