Munich Personal RePEc Archive

Social security and two-earner households

Kaygusuz, Remzi (2011): Social security and two-earner households.

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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 intra-cohort redistribution done by the following policies of social security. Due to spousal and survivor's benefit provisions, the system redistributes (mostly) to single-earner married households (not necessarily progressive). Retirement benefits are a concave function of past mean earnings. Hence, the system redistributes from high earners to low earners. Finally, the existence of a cap on social security taxable earnings makes the system regressive. This is the first paper that 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 the labor supply of its member(s) and saving. The aggregate production function has as inputs capital and labor aggregated by efficiency. Elimination of these policies results in a 6.1% increase in married female labor force participation rate. The middle-income single-earner married households experience the largest welfare losses whereas the high-income two-earner households together with high-income single households experience the largest welfare gains.

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