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Social Security, Benefit Claiming and Labor Force Participation: A Quantitative General Equilibrium Approach

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  • Selahattin Imrohoroglu
  • Sagiri Kitao

Abstract

We build a general equilibrium model with endogenous saving, labor force participation, work hours and Social Security benefit claiming, in which overlapping generations of individuals face income, survival, and health expenditure risks in incomplete markets. We use the model to study the impact of three Social Security reforms: reductions in benefits and payroll taxes, an increase in the early retirement age from 62 to 64, and an increase in the normal retirement age from 66 to 68. We show that a reform can have a significant effect on the budget of Social Security through changes in savings as well as benefit claiming and labor force participation. When the projected aging of the population is taken into account, the case for a reform that encourages labor force participation of the elderly becomes stronger.

Suggested Citation

  • Selahattin Imrohoroglu & Sagiri Kitao, 2010. "Social Security, Benefit Claiming and Labor Force Participation: A Quantitative General Equilibrium Approach," Working Papers, Center for Retirement Research at Boston College wp2010-02, Center for Retirement Research, revised Mar 2010.
  • Handle: RePEc:crr:crrwps:wp2010-02
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    Cited by:

    1. Hugo Benétez-Silva & J. Ignacio García-Pérez & Sergi Jiménez-Martín, 2011. "The Effects of Employment Uncertainty and Wealth Shocks on the Labor Supply and Claiming Behavior of Older American Workers," Working Papers 564, Barcelona Graduate School of Economics.
    2. Rodolfo E. Manuelli & Adrian Peralta-Alva, 2011. ""Frictions in financial and labor markets": a summary of the 35th Annual Economic Policy Conference," Review, Federal Reserve Bank of St. Louis, issue July, pages 273-292.
    3. Ellen R. McGrattan & Edward C. Prescott, 2017. "On financing retirement with an aging population," Quantitative Economics, Econometric Society, vol. 8(1), pages 75-115, March.
    4. Hugo Benítez-Silva & Eva Cárceles-Poveda & Selçuk Eren, 2011. "Effects of Legal and Unauthorized Immigration on the U.S. Social Security System," Working Papers wp250, University of Michigan, Michigan Retirement Research Center.
    5. Halliday, Timothy J. & He, Hui & Zhang, Hao, 2009. "Health Investment over the Life-Cycle," IZA Discussion Papers 4482, Institute for the Study of Labor (IZA).
    6. Mariacristina De Nardi & Eric French & John Bailey Jones, 2016. "Medicaid Insurance in Old Age," American Economic Review, American Economic Association, pages 3480-3520.
    7. Varga, Gergely, 2014. "Demográfiai átmenet, gazdasági növekedés és a nyugdíjrendszer fenntarthatósága
      [Demographic transition, economic growth, and sustainability of the pension system]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1279-1318.
    8. Erosa, Andrés & Fuster, Luisa & Kambourov, Gueorgui, 2012. "Labor supply and government programs: A cross-country analysis," Journal of Monetary Economics, Elsevier, pages 84-107.
    9. Minchung Hsu, 2013. "Health Insurance and Precautionary Saving: A Structural Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 511-526, July.

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