Labor Supply Elasticity and Social Security Reform

28 Pages Posted: 16 Jul 2008 Last revised: 23 May 2009

See all articles by Selahattin Imrohoroglu

Selahattin Imrohoroglu

University of Southern California - Department of Finance and Business Economics

Sagiri Kitao

City University of New York, CUNY Hunter College - Department of Economics

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Date Written: July 2008

Abstract

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 extensively study various preferences and values for IES in a general equilibrium model with overlapping generations. We calibrate the model to key U.S. macroeconomic indicators and document how social security reform impacts the economy under different preferences. We find that aggregate effects are surprisingly similar, regardless of the wide range of the values of IES used. However, reform leads to a life-cycle reallocation of work hours from early years to later working years and the size of this reallocation significantly increases with the IES.

Keywords: Social security reform, labor supply elasticity

JEL Classification: E2, E6, H55, J2

Suggested Citation

Imrohoroglu, Selahattin and Kitao, Sagiri, Labor Supply Elasticity and Social Security Reform (July 2008). Marshall School of Business Working Paper No. MKT 13-08, Available at SSRN: https://ssrn.com/abstract=1159980 or http://dx.doi.org/10.2139/ssrn.1159980

Selahattin Imrohoroglu

University of Southern California - Department of Finance and Business Economics ( email )

Hoffman Hall 701
Mail Code 1427
Los Angeles, CA 90089-1427
United States

Sagiri Kitao (Contact Author)

City University of New York, CUNY Hunter College - Department of Economics ( email )

695 Park Avenue
New York, NY 10021
United States