Social Security Incentives and Human Capital Investment

Poutvaara, Panu; Lau, Morten I.

doi:10.2139/ssrn.267838

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Social Security Incentives and Human Capital Investment

30 Pages Posted: 1 May 2001

See all articles by Panu Poutvaara

Panu Poutvaara

University of Helsinki - Department of Economics; Helsinki Center of Economic Research (HECER); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Morten I. Lau

Durham Business School

Date Written: March 2001

Abstract

While the effect of social security systems on retirement decisions has received much attention, the impact of these systems on individuals' incentives to invest in their human capital has not been analyzed. We integrate human capital investment and retirement decisions in a simple analytical life-cycle model with full certainty and investigate how different social security schemes may a?ect welfare, human capital investment and labor supply. We analyze and compare three different social security systems. Our results suggest that actuarial adjustment and the link between individual social security contributions and benefits increase human capital investment and postpone retirement.

Keywords: Social Security, Retirement, Education, Human Capital, Labor Supply

JEL Classification: H55, I21, J26

Suggested Citation: Suggested Citation

Poutvaara, Panu and Lau, Morten Igel, Social Security Incentives and Human Capital Investment (March 2001). Available at SSRN: https://ssrn.com/abstract=267838 or http://dx.doi.org/10.2139/ssrn.267838