Social Security as a Monopoly

Drost, André and Felderer, Bernhard (July 2001) Social Security as a Monopoly. Former Series > Working Paper Series > IHS Economics Series 101


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Abstract: The typical social security program is designed as follows: (1) It is organized as a pay-as-you-go system. (2) It is financed with a payroll tax. (3) Employers and employees share the tax. (4) Benefits are largely independent of asset income. (5) Benefits are increasing with the taxes paid. (6) Benefits induce retirement. We present a model that can explain these stylized facts. Our model refers to an economy where workers want to monopolize the labor market. For this purpose, they bring about a social security act, which requires old workers to retire and young workers to pay transfers to retirees. The first prescription serves to reduce labor supply in order to realize a monopoly gain. The second prescription serves to give oldworkers share to the gain. As we will show, the social security program emerging in our model is similar to the typical program described above.;

Item Type: IHS Series
Keywords: 'Social security' 'Public pensions' 'Political economy' 'Monopolistic labor market' 'Nash bargaining solution'
Classification Codes (e.g. JEL): H55
Date Deposited: 26 Sep 2014 10:37
Last Modified: 26 Sep 2019 16:18
ISBN: 1605-7996

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