Demography, Retirement and the Future of Social Security

Abstract

Why is social security a demographic, political and labor problem? What are the crucial links among these elements? Is there any direct impact of demography on the retirement choice? Are future old people expecting to work longer? What impact do we expect from the ageing of the population on the social security transfers? The paper aims to be a contribution in answering these questions. It builds an overlapping generations time-intensive pressure group model where social security derives from the interaction of the two groups of young and old, different in size, wage and persistence. The ageing of the population induces old people to set a lower tax rate on their wage income, which decreases the disincentives to work and reduces retirement. As a consequence, they could enjoy a larger per capita transfer. This result implies that the overall impact of ageing on the social security's size is ambiguous, due to the opposite per capita and size effects. The paper stresses how the result depends crucially on the interactions among actual and future population structures, labor market conditions, persistence beliefs, and policy implementations.