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Social Security, Unemployment Risk and Efficient Bargaining between Unions and Firms

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  • Reichlin, Pietro

Abstract

We construct an overlapping generations model with unemployment risk where wages, employment and severance payments are set through efficient bargaining between risk averse Unions and risk neutral firms. Assuming that a First Best cannot be achieved due to workers' shirking incentives, we characterize a Second Best allocation and show how this can be implemented in a market economy. We prove that the latter generates too little employment and consumption smoothing, an excessive young age consumption and too much saving with respect to the Second Best. This inefficiency can be reduced by increasing the intensity of a pay-as-you-go social security system even if the economy is dynamically efficient.

Suggested Citation

  • Reichlin, Pietro, 2013. "Social Security, Unemployment Risk and Efficient Bargaining between Unions and Firms," CEPR Discussion Papers 9336, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9336
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    References listed on IDEAS

    as
    1. Benoit Dostie, 2011. "Wages, Productivity and Aging," De Economist, Springer, vol. 159(2), pages 139-158, June.
    2. repec:cdl:ucsbec:3-98 is not listed on IDEAS
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Labor markets; Risk; Social security; Unemployment;
    All these keywords.

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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