Working Paper: NBER ID: w12854
Authors: Elizabeth M. Caucutt; Thomas F. Cooley; Nezih Guner
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.
Keywords: social security; demographic change; urbanization; political economy
JEL Codes: E61; H2; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in life expectancy (I14) | decline in farm wages (J43) |
| decline in farm wages (J43) | attractiveness of urban living (R23) |
| attractiveness of urban living (R23) | rural-to-urban migration (R23) |
| rural-to-urban migration (R23) | political shift towards supporting social security (H55) |
| political shift towards supporting social security (H55) | median voter transitions from farmer to city worker (P23) |
| median voter transitions from farmer to city worker (P23) | support for positive social security tax (H55) |
| increase in life expectancy (I14) | rural-to-urban migration (R23) |
| economic conditions of the time (N13) | establishment of social security systems (H55) |