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Endogenous versus exogenous efficiency units of labour for the quantitative study of social security: two examples

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  • Carmen Alvarez-Albelo

Abstract

This paper explores the role of endogenous versus exogenous efficiency units of labour for the quantitative evaluation of the impact of pay-as-you-go Social Security on labour supply. Pension response to a population growth rate change is also studied. Two dynamic general equilibrium models are used: one with human capital accumulation through learning-by-doing, and a second with exogenous efficiency units of labour. The main differences in the results are the following: (a) the shift in the working time-age profile induced by the elimination of Social Security considerably differs in both models. The increase in average hours worked is 4% higher under human capital accumulation than in the alternative model; and (b) the pension falls by a similar percentage in both models when the population growth rate is set to zero. This occurs because the capital-labour ratio changes less under learning-by-doing than with exogenous efficiency units of labour.

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  • Carmen Alvarez-Albelo, 2004. "Endogenous versus exogenous efficiency units of labour for the quantitative study of social security: two examples," Applied Economics Letters, Taylor & Francis Journals, vol. 11(11), pages 693-697.
    • Handle: RePEc:taf:apeclt:v:11:y:2004:i:11:p:693-697
    DOI: 10.1080/1350485042000236548
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    References listed on IDEAS

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    1. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
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    3. Alan Auerbach & Laurence Kotlikoff, 2002. "Auerbach-Kotlikoff Model," QM&RBC Codes 90, Quantitative Macroeconomics & Real Business Cycles.
    4. Thomas Cooley & Jorge Soares, 1999. "Privatizing Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 731-755, July.
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