A framework for social security analysis

The public provision of pensions in the U.S. by means of the Social Security systems is examined relative to conventional arguments for public intervention. The system is analysed in terms of income redistribution, the provision of insurance where private markets are not efficient, and the compelling of saving by individuals.     

A life cycle analysis of social security

Summary We develop an applied general equilibrium model to examine the optimal social security replacement rate and the welfare benefits associated with it. Our setup consists of overlapping generations of 65-period lived individuals facing mortality risk and individual income risk. Private credit markets, including markets for private annuities, are closed by assumption. Unlike previous analyses, we find that an unfunded social security system may well enhance economic welfare. In our benchmark economy, the optimal social security replacement rate is 30%, and an empirically more plausible replacement rate of 60% raises welfare compared with an economy with no social security system.We would like to thank Andy Atkeson, V. V. Chari, Steve Davis, Paul Evans, Lars Hansen, Tim Kehoe, Nobu Kiyotaki, Ed Prescott, José-Victor Ríos-Rull, Richard Rogerson, Tom Sargent, Nancy Stokey, Dick Sweeney, Robert Townsend, and the participants of the NBER Economic Fluctuations Small Group Workshop on Micro and Macro Perspectives on the Aggregate Labor Market in Palo Alto, the NBER General Equilibrium Theory Conference in Minneapolis, the Money and Banking Workshop at the University of Chicago, and the NBER Summer Institute. An earlier version of this paper was titled A Dynamic Stochastic General Equilibrium Analysis of Social Security. This material is based upon work supported by the National Science Foundation under Grant No. SES-9210291. We also thank the Minnesota and San Diego Supercomputer Centers for their support.     

A welfare analysis of social security in a dynastic framework*

In this article, we study the welfare effects of unfunded social security in a general equilibrium model populated with overlapping generations of altruistic individuals that differ in lifetime expectancy and earnings ability. Contrary to previous research, our results indicate that steady‐state welfare increases with social security for most households, although by very different amounts. This result is mainly due to two factors. First, the presence of two‐sided altruism significantly mitigates the crowding out effect of unfunded social security. Second, ability shocks and uncertain lifetimes generate significant heterogeneity among households to yield different induced preferences for social security.     

A positive theory of social security

In this paper I make two points. First, I argue that social security programs around the world link public pensions to retirement: people do not lose their pensions if they make a million dollars a year in the stock market, but they do confront marginal tax rates of up to 100 percent if they choose to work. Second, after arguing that most existing theories cannot explain this fact, I construct a positive theory that is consistent with it. The main idea is that pensions are a means to induce retirement—that is, to buy the elderly out of the labor force because aggregate output is higher if the elderly do not work. This is modeled through positive externalities in the average stock of human capital: because skills depreciate with age, the elderly have lower-than-average skill and, as a result, have a negative effect on the productivity of the young. When the difference between the skill level of the young and that of the old is large enough, aggregate output in an economy where the elderly do not work is higher. Retirement is desirable in this case, and social security transfers are the means by which such retirement is induced. The theory developed in this paper is also shown to be consistent with a number of other regularities documented in Section 1.     

Welfare and comparative statics implications of fair social security : A steady-state analysis

This paper examines the steady-state welfare and comparative statics implications of fair social security in an overlapping generations model with uncertain lifetime. The model is designed to capture the effects of lifetime uncertainty extending over the individual's entire lifespan, the effects of intentional and unintentional bequests, and the effects of the earning profile. He shows that the welfare effects depend on the size of the benefits and the structure of the social security tax. In particular, even fair social security may have negative welfare implications if the underlying tax structure is ill-designed. Some comparative statics implications are analyzed.     

浅析新农村的社会保障问题

社会保障是构建社会主义和谐社会的一项基础性制度建设,对调节收入分配、促进社会公平具有重要作用.本文从理论和实践的结合上,剖析了当前我国新农村建设中社会保障方面存在的根本性问题,同时对建设和完善符合我国国情的农村社会保障体系的发展思路进行了探讨.     

浅析新农村的社会保障问题

社会保障是构建社会主义和谐社会的一项基础性制度建设,对调节收入分配、促进社会公平具有重要作用。本文从理论和实践的结合上,剖析了当前我国新农村建设中社会保障方面存在的根本性问题,同时对建设和完善符合我国国情的农村社会保障体系的发展思路进行了探讨。     

我国社会保障立法刍议

世纪之初,党和国家提出把做好社会保障作为当前全国的一项重要任务,争取用五年时间,初步建立起与社会主义市场经济体制相适应的社会保障体系。本文从社会保障的定义,内容以及对社会进步的作用说起,分析当前我国在社会保障立法方面存在的主要问题,并且针对这些问题建设性地提出一些解决方法。尤其是重点探讨了社会保险法在立法上的若干问题。     

A quantitative theory of social security without commitment

This paper investigates the determination of social security within a general equilibrium, overlapping-generations model where agents live for many periods, and replacement rates are determined through voting in each period by forward looking agents. The distinctive feature is the study of Markov equilibrium policy outcomes which do not rest on a commitment mechanism. Versions of the model are calibrated to the US economic, policy, and demographic conditions. Even in the absence of commitment, the policy preferences of tax-paying working-age voters sustain a positive level of retirement benefits. This follows because the current choices about social security will have, at the time when the current voters will retire, a positive impact on the political support for social security and on the returns to savings. On the other hand, the projected decline in the U.S. population growth rate causes the replacement rate and the tax rate to decline. This quantitative response without commitment differs from that in the case when policies are committed at time zero.     

Optimal social security tax with myopic agents

Myopic agents lack the foresight to save for their own old age. It is generally believed that correcting myopia is a rationale for a pay-as-you-go (PAYG) pension system. This view has been supported by existing literature showing that the optimal PAYG social security tax should increase when people are more myopic. In this paper we obtain new results opposed to the traditional view. By establishing a very standard general equilibrium OLG model with myopic agents and endogenized marginal product of capital, we show that the optimal social security tax should be lower when people are more myopic. Our numerical analysis also shows that the welfare cost of the social security tax increases with people's degree of myopia. These results suggest that correcting myopia is not a clear rationale for the PAYG social security.     

社会保障的新理念与中国农民扶持性社会保障体制

中国的市场化改革使广大的中国农民直接暴露在现代市场经济风险下,而家庭联产承包制的实施又使改革开放前与计划经济体制相适应的保障体制无法运转,这样,中国广大农民成为了现代市场经济中最没有保障的弱势群体。因此,建立农民社会保障体系的意义重大。中国农民社会保障体制迟迟没有建立的原因有二:其一,传统社会保障理念仅考虑到其工具价值,忽视了其目的价值;其二,农民的组织化程度低,导致他们在社会利益分割过程中没有谈判地位。从建立农民社会保障体制的双重价值出发,建立保障农民生存权和基本发展权的农民扶持性社会保障体制具有重要意义。     

Differential mortality and social security

Abstract This paper studies the normative problem of redistribution between individuals who differ in their lifespans. We discuss aspects related to the objective function and argue that aversion to multiperiod inequality should be taken into account. Then, we study the properties of the social optimum both with full information and with asymmetric information. We highlight the role of aversion to multiperiod inequality and show that it has substantial consequences on the design of Social Security schemes. In particular, we show that for a low (resp. high) aversion to multiperiod inequality, a negative (resp. positive) implicit tax rate on continued activity is desirable.     

The social economics of job security

Using a social economics perspective, this essay examines the positive and negative effects of job security, insecurity and the perceptions thereof on the welfare of workers, organizations, and society, as well as policy options that could alleviate the negative socio-economic consequences of job insecurity. The essay questions perceived job insecurity as a device to increase worker effort, both on efficiency and ethical grounds. It also suggests that increased perceptions of job insecurity have adversely affected workers' well-being and have undesirable macroeconomic and social effects. Public policy makers and researchers should examine ways to minimize the negative consequences associated with involuntary job loss. They should also consider to what extent both limiting firms' ability to layoff workers and providing incentives to firms that downsize to use alternatives to layoffs are socially desirable. The authors thank two anonymous referees for comments, and Elizabeth Kirkwood and Deanna Behrens for outstanding research assistance. The authors invite others to e-mail them if interested in organizing a panel for a future ASE meeting.     

An analysis of life-cycle accumulation of financial assets

This paper uses data from the Consumer Expenditure Survey (CEX) to estimate age profiles for financial asset accumulation. While the CEX is not designed to estimate financial wealth, it has the advantage of being available on a consistent basis since 1980.As the data set is not a panel, synthetic cohort techniques are used to analyse the dynamics of asset accumulation over the life cycle, while allowing for cohort and business cycle effects. It is shown that it is not possible to separately identify cohort and age effects in the level of financial assets. However, with the specification proposed, it is possible to identify all the parameters (except the intercept) of the age profile for the changes in financial assets.Several measures of location are analysed, and several conditioning variables considered. The results seem to indicate a decline in the rate of financial asset accumulation in the last part of the life cycle. However, because the scale of this effect is not identified, these results cannot be used to address the issue of asset decumulation by the elderly.     

Funded social security and economic growth

This paper investigates the relationship between economic growth and a fully funded social security system in an overlapping generations model with family altruism. It is shown that funded social security may harm growth if there are operative bequests within the family.     

Sustainable social security: Four options

Four options to make the social security sustainable under the coming demographic shift are presented; increase payroll taxes by 6 percentage points, reduce replacement rates by one-third, raise the normal retirement age to 73, or means-test the benefits and reduce them in income. The paper accounts for labor supply at both intensive and extensive margins and analyzes welfare effects across agents that differ in age, wealth and cohorts. While the four policies all achieve the same goal, economic outcomes differ significantly. Options to curtail benefits encourage own savings and capital accumulation, while the payroll tax increase and the means-test reduce work effort. Future generations prefer options to reduce benefits, but current generations prefer to finance the transition with payroll taxes.     

Quasi-hyperbolic discounting and social security systems

Hyperbolic discounting has become a common assumption for modeling bounded rationality with respect to individual savings decisions. We examine the effects of hyperbolic discounting on the comparison of alternative social security systems. We show that this form of bounded rationality breaks the equivalence between funded and pay-as-you-go (PAYG) systems established in Sheshinski and Weiss [Sheshinski, E., Weiss, Y., 1981. Uncertainty and optimal social security. Quarterly Journal of Economics 95, 189-206]. Intergenerational transfers within a PAYG economy are usually secured by the social security system and independent of longevity, whereas this is not the case for the funded economy. The savings level under hyperbolic discounting is lower than under exponential discounting [Laibson et al., 1998], but the ratio between the savings level under hyperbolic discounting within a funded economy and a PAYG economy depends on the effectiveness of the commitment devices. It is shown that if individuals are hyperbolic discounters, then in a PAYG economy any change in the mandated level of intergenerational transfers is neutralized by individuals’ voluntary bequests. This does not apply to a funded system.     

Increasing longevity and social security reforms—A legislative procedure approach

Increasing longevity causes an upward trend in the dependency ratio in many countries. This raises concerns about the financial sustainability of social security schemes, and reform proposals and initiatives abound. It is shown that a fundamental policy choice inevitably arises since a given social security system cannot be maintained by simply indexing pension ages to longevity. The political reform process is analysed using the so-called legislative procedure. When longevity increases, the retirement age is raised more than proportionally to the increase in longevity, but the young also make larger transfers to the old.