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Social security and two-earner households

Remzi Kaygusuz ()

Journal of Economic Dynamics and Control, 2015, vol. 59, issue C, 163-178

Abstract: In the past decades, elimination of the pay-as-you-go system in U.S. has been extensively discussed and studied. Such an elimination would also eliminate the intragenerational redistribution done by the following policies of social security. Due to spousal and survivor׳s benefit provisions, US Social Security system redistributes (mostly) to single-earner married households. Since retirement benefits are a concave function of past mean earnings, the system redistributes from high earners to low earners. Finally, existence of a cap on social security taxable earnings makes the system regressive. This paper quantifies redistributive, labor supply, and welfare implications of these policies using a general equilibrium life-cycle model. Agents start out as permanently married or single and with education levels and wage profiles, where the latter depend both on education and gender. The household is the decision maker and decides on labor supply of its member(s) and saving. Elimination of these policies results in a 5.5% rise in labor force participation of married females, while increasing aggregate welfare by 0.4%. A majority of households experience positive gains in welfare. Single-earner married households incur large welfare losses (as big as 1.1%), whereas two-earner households with high skilled spouses experience substantial welfare gains (as big as 1.9%).

Keywords: Social security; Two-earner households; Labor force participation (search for similar items in EconPapers)
JEL-codes: E62 H31 H55 J12 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Social security and two-earner households (2011) Downloads
Working Paper: Social Security and Two-Earner Households (2007)
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DOI: 10.1016/j.jedc.2015.07.006

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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