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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 of overlapping generations that incorporates endogenous saving, labor force participation, work hours, and Social Security benefit claims. Using this model, we study the impact of three Social Security reforms: 1) a reduction in benefits and payroll taxes; 2) an increase in the earliest retirement age, to sixty-four from sixty-two; and 3) an increase in the normal retirement age, to sixty-eight from sixty-six. We find that a 50 percent cut in the scope of the current system significantly raises asset holdings and the labor input, primarily through higher participation of older workers, and reduces the shortfall of the Social Security budget through a reduction in early claiming. Increasing the normal retirement age also raises saving and the labor supply, but the effects are smaller. Postponing the earliest retirement age has only a negligible effect. When the projected aging of the population is taken into account, the case for a reform that encourages labor force participation of the elderly appears to be much stronger.

Suggested Citation

  • Selahattin Imrohoroglu & Sagiri Kitao, 2010. "Social Security, benefit claiming, and labor force participation: a quantitative general equilibrium approach," Staff Reports 436, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:436
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    2. 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.
    3. Erosa, Andrés & Fuster, Luisa & Kambourov, Gueorgui, 2012. "Labor supply and government programs: A cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 59(1), pages 84-107.
    4. Hugo Benítez-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," Economics Working Papers 1275, Department of Economics and Business, Universitat Pompeu Fabra.
    5. Zou, Tieding, 2017. "延迟退休的制约因素、政策效果与动态研究方法评价 [Restriction, Policy Effect and Dynamic Research Method to Delay Retirement]," MPRA Paper 85556, University Library of Munich, Germany, revised 30 Jan 2018.
    6. Mariacristina De Nardi & Eric French & John Bailey Jones, 2016. "Medicaid Insurance in Old Age," American Economic Review, American Economic Association, vol. 106(11), pages 3480-3520, November.
    7. 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.
    8. Halliday, Timothy J. & He, Hui & Ning, Lei & Zhang, Hao, 2019. "Health Investment Over The Life-Cycle," Macroeconomic Dynamics, Cambridge University Press, vol. 23(1), pages 178-215, January.
    9. Teegawende Zeida, 2022. "The Tax Cuts and Jobs Act (TCJA): A Quantitative Evaluation of Key Provisions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 46, pages 74-97, October.
    10. 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.
    11. Bo Zhao, 2018. "Too Poor to Retire? Housing Prices and Retirement," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 27-47, January.
    12. Gunes Asik, 2018. "Impact of early retirement incentives on labor supply of young men and women : evidence from Turkey," Working Papers 20180002, UMR Développement et Sociétés, Université Paris 1 Panthéon-Sorbonne, Institut de Recherche pour le Développement.
    13. 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.
    14. Janicki, Hubert P., 2014. "The role of asset testing in public health insurance reform," Journal of Economic Dynamics and Control, Elsevier, vol. 44(C), pages 169-195.

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    Keywords

    Retirement; Employee fringe benefits; Saving and investment; Social security; Labor supply;
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