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Labor Supply Elasticity and Social Security Reform

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  • Selahattin Imrohoroglu
  • Sagiri Kitao

Abstract

Previous literature on social security reform has used a variety of period utility functions and calibrated values for the intertemporal elasticity of substitution (IES) in labor. In this paper, we extensively study various preferences and values for IES in a general equilibrium model with overlapping generations. We calibrate the model to key U.S. macroeconomic indicators and document how social security reform impacts the economy under different preferences. We find that aggregate effects are surprisingly similar, regardless of the wide range of the values of IES used. However, reform leads to a life-cycle reallocation of work hours from early years to later working years and the size of this reallocation significantly increases with the IES.

Suggested Citation

  • Selahattin Imrohoroglu & Sagiri Kitao, 2009. "Labor Supply Elasticity and Social Security Reform," Working Papers, Center for Retirement Research at Boston College wp2009-5, Center for Retirement Research, revised Mar 2009.
  • Handle: RePEc:crr:crrwps:wp2009-5
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