February 6, 2023, 11:00–12:30
Job Market Seminar
The social security system is non-neutral with respect to marriage, with married couples able to receive 150 percent of the primary earner’s benefits (spousal benefits). This paper asks how changes in tax and retirement policy affect education and marriage. We first document trends relating to social security and household structure and then build a structural model with endogenous education and marriage, where households are modeled in a collective-household setup as compared to a standard unitary model. Contrary to models where the returns to education are only through the labor market, our model predicts increasing payroll taxes leads to a marginal increase in those who invest in college, while reducing those who choose to remain single. Removal of spousal benefits or joint income taxation results in a reduction in the economic benefit of marriage and work. This leads to increased labor force participation by married females; however, removal of spousal benefits leads to higher singlehood rates, higher college investment, and higher male labor force participation, while that of joint income taxation results in lower male labor force participation and marginal change in college investment or singlehood rates. This arises primarily due to the modeling of the collective household, where both spouses’ decisions matter. Thus, evaluation of the social security system is sensitive to decisions of education, marriage, and within-household bargaining and will be incomplete without incorporating these decisions.