The Joint Decision-Making of Married Couples and the Social Security Pension System∗

The current OASI program redistributes resource from high wage workers to low wage workers and from two-earner couples to one-earner couples. Due to computational difficulty, however, most previous literature on the dynamic general equilibrium analyses of Social Security assumes “unisex” individuals and does not consider the redistribution between one-earner and two-earner households. In the present paper, we extend a standard general equilibrium OLG model with heterogeneous agents and quantitatively analyze the effect of spousal and survivors benefits on the labor supply of married couples. According to our model, calibrated to the 2009 U.S. economy, removing spousal and survivors benefits would increase female market work hours by 3.1-3.6% and total output by 0.9-1.4% in the long run. A phased-in removal of these benefits could make all current and future age cohorts on average better off if the increased tax revenue due to the output increase was appropriately reimbursed. JEL Classification Numbers: D91, E62, H55.