The Joint Labor Supply Decision of Married Couples and the Social Security Pension System
Posted: 16 Nov 2010
Date Written: September 1, 2010
The current U.S. Social Security program redistributes resources from high wage workers to low wage workers and from two-earner couples to one-earner couples. The present paper extends a standard general-equilibrium overlapping-generations model with uninsurable wage shocks to analyze the effect of spousal and survivors benefits on the labor supply of married couples. The heterogeneous-agent model calibrated to the 2009 U.S. economy predicts that removing spousal and survivors benefits would increase female market work hours by 4.3-4.9% and total output by 1.1-1.5% in the long run, depending on the government financing assumption. If the increased tax revenue due to higher economic activity after the policy change was redistributed in a lump-sum manner, a phased-in cohort-by-cohort removal of these benefits would make all current and future age cohorts on average better off.
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