How Well Did Social Security Mitigate the Effects of the Great Recession?

Abstract

Using a computational life cycle model, this article assesses how Social Security affects the welfare of different types of individuals during the Great Recession. Overall, we find that Social Security reduces the average welfare losses for agents alive at the time of the Great Recession by the equivalent of 1.4% of expected future lifetime consumption. Moreover, we show that although the program mitigates some of the welfare losses for most agents, it is particularly effective at mitigating the losses for agents who are poorer and/or older at the time of the shock.

Idiosyncratic Risk, Aggregate Risk, and the Welfare Effects of Social Security

“…Other related papers are Ludwig and Reiter (), who assess how pension systems should optimally adjust to demographic shocks, Olovsson (), who contends that pension payments should be highly risky because this increases precautionary savings and thereby capital formation, Peterman and Sommer (, ), who discuss the insurance benefits of social security in the Great Depression and the Great Recession, respectively, modeling each event as a one‐time macroeconomic shock, and, finally, Gomes et al. (), who use a model similar to ours to study how changes in fiscal policy and government debt affect asset prices and the wealth distribution.…”

A historical welfare analysis of Social Security: Whom did the program benefit?

“…Another study in the strand of literature that focuses on Social Security and transitional welfare is Peterman and Sommer (2019), which—similar to this paper—explores the interaction of Social Security and a large‐scale recession. However, the questions and conclusions between these two papers differ in substantive ways.…”

“…Social Security was implemented in the midst of the Great Depression, and represented the largest U.S. social insurance program at the time. While Social Security has been shown to generally mitigate welfare losses during deep economic downturns (Peterman and Sommer (2019)), a large quantitative macro literature largely finds that the current program reduces steady state welfare in general equilibrium models. The findings from these studies raise a question as to why the program—given its welfare costs in the steady state—was implemented in the first place.…”

“…However, the questions and conclusions between these two papers differ in substantive ways. Specifically, Peterman and Sommer (2019) shows that even though the current Social Security program is generally welfare‐reducing, the established program can meaningfully mitigate welfare losses from large economic downturns. In contrast, this paper quantifies the implications of the introduction of the original Social Security program on welfare of agents who experience its adoption.…”

Zor Zamanlarda Sosyal Güvenliği Yeniden Düşünmek Sosyal Güvenlik ve Gelirin Yeniden Dağılımı

“…Sosyal güvenlik sistemlerinin gelirin yeniden dağılım işlevini etkileyen değişkenlere yönelik literatür değerlendirildiğinde, söz konusu değişkenleri refahın yaratımı anlamında ekonomik büyüme ve birincil gelir dağılımının eşitlik düzeyi (Paukert,1969;Bellettini ve Ceroni, 2000;Wang, vd, 2012;Kyriacou,vd,2018;Thewissen, 2014;Berg,vd.,2018;Caminada,vd,2019;;Cammeraat,2020); refahın bölüşümü bağlamında refah rejimlerinin özellikleri (Esping- Anderson, 1990;Detlef, 2018;Caminada,vd,2019;Hannah,vd,2020); sosyal güvenlik programlarının düzenleniş biçimi ve yönetsel yapının özellikleri (Paukert,1969;Korpi ve Palme,1998;Goudswaard ve Caminada,2010;Kyriacou,vd,2018;Hannah,vd,2020); sosyal güvenlik programlarının türleri (Goudswaard ve Caminada,2010;Wang, vd, 2012;Kyriacou,vd,2018;Caminada,vd,2019;Peterman ve Somme, 2019;Cammeraat,2020;Saez ve Zucman, 2020) ile sosyal güvenlik sistemlerinin finansman kaynakları (Paukert,1969;Adema,vd,2014;Caminada,vd,2019;Schmit, vd; olarak değerlendirmek olanaklıdır.…”