Labor supply elasticity and social security reform

Previous literature on social security reform has used a variety of period utility functions and calibrated values for the intertemporal elasticity of substitution (IES) in labor. In this paper, we show that the effects of social security reforms on aggregate labor supply are invariant to plausible...

Full description

Saved in:
Bibliographic Details
Published in:Journal of public economics 2009-08, Vol.93 (7), p.867-878
Main Authors: İmrohoroğlu, Selahattin, Kitao, Sagiri
Format: Article
Language:English
Subjects:
Economic conditions
Elasticity of substitution
Equilibrium
Labor supply elasticity
Labour supply
Life cycles
Reform
Social security
Social security reform
Social security reform Labor supply elasticity
U.S.A
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Previous literature on social security reform has used a variety of period utility functions and calibrated values for the intertemporal elasticity of substitution (IES) in labor. In this paper, we show that the effects of social security reforms on aggregate labor supply are invariant to plausible values of the IES, but the effect of such reforms on the profile of hours over the life-cycle is highly sensitive to the IES. We first establish these results analytically in a simple partial-equilibrium setting and then demonstrate their robustness in a general equilibrium model calibrated to match key U.S. macroeconomic indicators. We find that the aggregate effects are similar regardless of the wide range of the values of IES used in calibrated economies. However, social security reform leads to a large reallocation of hours worked over the life-cycle, from early years to later working years, and the size of this reallocation significantly increases with the IES.
ISSN:0047-2727
1879-2316
DOI:10.1016/j.jpubeco.2009.05.002