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

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

During the period from 1880 to 1950 publicly managed retirement security programs became an important part of the social fabric in most advanced economies. In this paper we study the social, demographic and economic origins of social security. We describe a model economy in which demographics, technology, and social security are linked together. We study an economy with two locations (sectors), the farm (agricultural) and the city (industrial). The decision to migrate from rural to urban locations is endogenous and linked to productivity differences between the two locations and survival probabilities. Furthermore, the level of social security is determined by majority voting. We show that a calibrated version of this economy is consistent with the historical transformation in the United States. Initially a majority of voters live on the farm and do not want to implement social security. Once a majority of the voters move to the city, the median voter prefers a positive social security tax, and social security emerges.

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File URL: http://w4.stern.nyu.edu/emplibrary/6-21_Cooley.pdf
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Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 06-21.

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Date of creation: 2006
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Handle: RePEc:ste:nystbu:06-21
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New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126

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Web page: http://w4.stern.nyu.edu/economics/

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