Consider two households, the Smiths and the Joneses. The Smiths are a two-earner household: both Dick and Jane Smith work and earn the same amount each year. The Joneses are a one-earner household: Sally Jones works while Harry Jones is a homemaker and stay-at-home dad. Use the way spousal benefits are treated in the Social Security system to address the following:
a. How do the relative rates of return on Social Security payroll taxes compare for the two families?
b. After the kids go off to college, Harry considers taking a small part-time job. How might the Social Security system of taxes and benefits affect his decision?
c. Suppose that both families have retired and have started to receive Social Security benefits. By what fraction will these benefits fall for each of these families if one member of the household dies? What implications does this have for relative consumption smoothing in these two households?