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Privatizing social security: the role of imperfect substitution between less and more experienced workers

  • Rojas, Juan A.

In this paper we use a large overlapping generations model with individuals that differ across age and productivity to assess the effect of privatizing a pay-as-you-go social security system in two model economies. The first one is the standard model pioneered by Auerbach and Kotlikoff (1987) characterized by the perfect substitutability in production of individuals with different experience levels. In the second one, individuals with different experience in the labor market are imperfect substitutes in production (Kremer and Thomson (1998)). The findings indicate that although in both economies the aggregate effects of removing social security are qualitatively similar, the standard model economy underestimates both the welfare losses of the individuals living at the period of the pension reform and the increase in pre-tax income inequality associated with such policy change.

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Paper provided by Universidad Carlos III de Madrid. Departamento de Economía in its series UC3M Working papers. Economics with number we022004.

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Date of creation: May 2002
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Handle: RePEc:cte:werepe:we022004
Contact details of provider: Web page: http://www.eco.uc3m.es/

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  1. Michele Boldrin & Juan J. Dolado & Juan F. Jimeno & Franco Peracchi, 1999. "The future of pensions in Europe," Economic Policy, CEPR;CES;MSH, vol. 14(29), pages 287-320, October.
  2. Mariacristina De Nardi & Selahattin Imrohoroglu & Thomas J. Sargent, 1998. "Projected U.S. demographics and social security," Working Paper Series WP-98-14, Federal Reserve Bank of Chicago.
  3. Mark Huggett & Gustavo Ventura, 1998. "On the Distributional Effects of Social Security Reform," Working Papers 9801, Centro de Investigacion Economica, ITAM.
  4. Rojas, Juan A., 2005. "Life-cycle earnings, cohort size effects and social security: a quantitative exploration," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 465-485, February.
  5. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
  6. Luis Puch & Omar Licandro, . "Are there any special features in the Spanish business cycles?," Working Papers 97-06, FEDEA.
  7. Richard B. Freeman, 1979. "The Effect of Demographic Factors on Age-Earnings Profiles," NBER Working Papers 0316, National Bureau of Economic Research, Inc.
  8. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
  9. Peter A. Diamond, 1996. "Proposals to Restructure Social Security," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 67-88, Summer.
  10. Begona EguÌa & Cruz EchevarrÌa, . "Existe alguna relaciÛn entre las tasas de desempleo y la estructura demogr·fica en Espana?," Studies on the Spanish Economy 11, FEDEA.
  11. Aiyer, Sri-Ram, 1997. "Pension reform in Latin America : quick fixes or sustainable reform?," Policy Research Working Paper Series 1865, The World Bank.
  12. 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.
  13. Berger, Mark C, 1985. "The Effect of Cohort Size on Earnings Growth: A Reexamination of the Evidence," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 561-73, June.
  14. Kevin M. Murphy & Finis Welch, 1992. "The Structure of Wages," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 285-326.
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