Demographic Change, Social Security, and Lifetime Decision Making

Abstract

In the first chapter of my thesis, I build a two period OLG model with a realistic demographic structure, an endogenous retirement age, a state dependent utility from consumption specification, a unique and intuitive disutility of labor function, and a pay as you go (PAYG) social security system to investigate the impact of demographic change on lifetime decisions of consumption-saving and retirement. The demographic changes are in the form of mortality rates declining and compression of morbidity happening together. The demographic structure of the model is calibrated using the survival probability data of the United States in 2017. After numerically solving for the steady state, alternative social security mechanisms are offered and numerically evaluated to see whether they can improve the economic outcome in the face of demographic change. In addition to numerically solving the steady state of the model with this specification, I also characterize the consumption-saving behavior of both individuals and the cohorts along the balanced growth path in this chapter - before and after demographic change. In the second chapter of my thesis, I build on the study from the first chapter by removing the state dependent utility from consumption specification from the theoretical model to investigate the impact of including the state dependent utility from consumption function in the model. I repeat the numerical exercises in the first chapter by using the model without the state dependent utility from consumption function.