An Evaluation of the Role of Factor Markets and Intensities in the Social Security Crisis: A Progress Report

Abstract

This paper begins to evaluate some of the complicated set of economic adjustments which are going to occur as the uneven population age structure of the U.S. matures. It argues that in the 2012-2035 "crunch" years for the social security system not only will workers be scarce relative to retirees, but they will also be scarce relative to capital. This fact will tend to raise the wage-rentals ratio and partially alleviate the problems of a retirement plan supported by taxes on labor income. On the other hand, during this period the large number of elderly persons will be attempting to dis-save by selling their assets to the relatively few younger, accumulating families. Such an imbalance will be equilibrated only by depressed asset prices. The conclusion, thus, is that the problems of the social security system may be partially alleviated by factor price adjustments, while private funded pension plans will have a problem of their own, namely lower than anticipated liquidation values.