Labor Supply Elasticity and Social Security Reform
28 Pages Posted: 16 Jul 2008 Last revised: 23 May 2009
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Labor Supply Elasticity and Social Security Reform
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: Suggested Citation
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