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The Automatic Stabilizing Effects of Social Security and 401(k) Plans

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Abstract

This study assesses the role of Social Security (OASI) and Social Security Disability Insurance, 401(k) plans, unemployment insurance, Medicare, and the federal income tax system in moderating the business cycle in the United States. Using Instrumental Variable (IV) estimation, we demonstrate that 401(k) plans exhibit a destabilizing influence in the economy. In contrast, Social Security, especially the Old-Age Survivors Insurance (OASI) program, reacts counter-cyclically and therefore has a positive effect on macroeconomic stabilization. Comparing the automatic stabilization properties of Social Security and 401(k) with those of conventional stabilizers – federal income tax, unemployment insurance, disability, and Medicare 401(k) -- reveals that 401(k) accounts reduce the automatic stabilization properties of these government programs by up to 20 percent. Policy makers must consider this unintended macroeconomic effect before expanding individual financial accounts for the purpose of funding retirement income.

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  • Teresa Ghilarducci & Joelle Saad-Lessler & Eloy Fisher, 2011. "The Automatic Stabilizing Effects of Social Security and 401(k) Plans," SCEPA working paper series. 2011-2, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    • Handle: RePEc:epa:cepawp:2011-2
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    Cited by:

    1. AILINCĂ, Alina Georgeta, 2015. "Automatic Monetary Stabilizers – A Solution For A Better Monetary Policy And Economy Functioning," Journal of Financial and Monetary Economics, Centre of Financial and Monetary Research "Victor Slavescu", vol. 2(1), pages 47-58.
    2. AILINCA, Alina Georgeta, 2014. "Automatic Social Stabilizers What They Are And How They Function," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 18(3), pages 45-57.

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    More about this item

    Keywords

    Automatic stabilizers; Social Security; 401(k) plans;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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