Labor Supply Responses to Social Security.

Abstract

Economists’ most basic model for studying Social Security policy issues is the so-called life-cycle model of saving behavior. This paper sets up a life-cycle model in which a household simultaneously chooses its lifetime consumption profile and retirement age. The paper calibrates parameters from Consumer Expenditure Survey data, making special use of observations of changes in household consumption immediately following retirement. The paper’s last section provides illustrative simulations of the effect of current Social Security provisions on average retirement ages, finding evidence of a several year reduction in working life in some cases.