The Farm, the City, and the Emergence of Social Security

43 Pages Posted: 24 Jan 2007 Last revised: 17 Aug 2010

See all articles by Elizabeth M. Caucutt

Elizabeth M. Caucutt

University of Western Ontario - Department of Economics

Thomas F. Cooley

New York University - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Nezih Guner

Universidad Carlos III de Madrid; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Multiple version iconThere are 4 versions of this paper

Date Written: January 2007

Abstract

During the period from 1880 to 1950, publicly managed retirement security programs became an important part of the social fabric in most advanced economies. In this paper we study the social, demographic and economic origins of social security. We describe a model economy in which demographics, technology, and social security are linked together. We study an economy with two locations (sectors), the farm (agricultural) and the city (industrial). The decision to migrate from rural to urban locations is endogenous and linked to productivity differences between the two locations and survival probabilities. Furthermore, the level of social security is determined by majority voting. We show that a calibrated version of this economy is consistent with the historical transformation in the United States. Initially a majority of voters live on the farm and do not want to implement social security. Once a majority of the voters move to the city, the median voter prefers a positive social security tax, and social security emerges.

Suggested Citation

Caucutt, Elizabeth M. and Cooley, Thomas F. and Guner, Nezih, The Farm, the City, and the Emergence of Social Security (January 2007). NBER Working Paper No. w12854. Available at SSRN: https://ssrn.com/abstract=959130

Elizabeth M. Caucutt

University of Western Ontario - Department of Economics ( email )

London, Ontario N6A 5B8
Canada

Thomas F. Cooley (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

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Room 7-85
New York, NY 10012
United States
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National Bureau of Economic Research (NBER)

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Nezih Guner

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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