Abstract
Abstract In this article, we study the labour supply effects and the redistributional consequences of the US social security system. We focus particularly on auxiliary benefits, where eligibility is linked to marital status. To this end, we develop a dynamic, structural life cycle model of singles and couples, featuring uncertain marital status and survival. We account for the socio-economic gradients to both marriage stability and life expectancy. We find that auxiliary benefits have a large depressing effect on married women’s employment. Moreover, we show that a revenue neutral minimum benefit scheme would moderately reduce inequality relative to the current US system.
Highlights
Social security is a strong source of intra-generational redistribution in the United States
We develop a dynamic, structural life cycle model of singles and couples with marriage and divorce risk and uncertain survival
We document three main facts: (1) marital stability is strongly linked to socio-economic status, (2) survival risk is linked to education, and (3) female labor supply is linked to spousal education and income
Summary
Social security is a strong source of intra-generational redistribution in the United States. We quantify the labor supply effects and the redistributional consequences of auxiliary social security benefits. To this end, we develop a dynamic, structural life cycle model of singles and couples with marriage and divorce risk and uncertain survival. When studying the intra-generational redistribution and labor supply incentives of the social security system it is important to take note of two striking facts: both marital status and survival are uncertain and strongly linked to socio-economic status. There are many more singles (and couples who do not marry), and divorce rates have gone up markedly These patterns imply an increasing share of elderly singles over time, which calls for re-evaluating the redistributional consequences of auxiliary benefits.
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