The Joint Labor Supply Decision of Married Couples and the Social Security Pension System
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Abstract
The current U.S. Social Security program redistributes resources from high wage workers to low wage workers and from two-earner couples to one-earner couples. The present paper extends a standard general-equilibrium overlapping-generations model with uninsurable wage shocks to analyze the effect of spousal and survivors benefits on the labor supply of married couples. The heterogeneous-agent model calibrated to the 2009 U.S. economy predicts that removing spousal and survivors benefits would increase female market work hours by 4.3-4.9% and total output by 1.1-1.5% in the long run, depending on the government financing assumption. If the increased tax revenue due to higher economic activity after the policy change was redistributed in a lumpsum manner, a phased-in cohort-by-cohort removal of these benefits would make all current and future age cohorts on average better off.
Key Findings
- An overlapping-generations model consisting of heterogeneous married couples predicts that removing spousal and survivors benefits from the current OASI program would increase female market work hours by 4.3–4.9 percent and total output by 1.1–1.5 percent.
- If the increased tax revenue due to higher economic activity after the policy change was redistributed in a lump-sum manner, a phased-in cohort-by-cohort removal of spousal and survivors benefits would make all current and future age cohorts on average better off.
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Paper ID
WP 2010-229Publication Type
Working Paper