Social Security Reforms: Benefit Claiming, Labor Force Participation, and Long-run Sustainability

Abstract

This paper develops a general equilibrium life-cycle model with endogenous labor supply in both intensive and extensive margins, consumption, saving, and benefit claiming to measure the long-run effects of a proposed Social Security reform. Agents in the model face medical expenditure, wage, health, and survival shocks. Raising the normal retirement age by two years increases labor supply by 2.8 percent and the capital stock by 12.6 percent, showing that both margins of adjustment are critical. General equilibrium effects are important to account for the effects of reform on savings, although the effects on labor supply are less important. (JEL D91, E21, H55, I13, J22)