A Positive Theory of the Income Redistributive Focus of Social Security
AbstractMany countries around the world have large public pension programs. Traditionally, these programs have been used to induce retirement by the elderly in order to free up jobs for the young and to redistribute income across generations. This paper provides an efficiency rationale for the inter-generational income redistribution focus of such programs in a framework which explicitly accounts for the role of the lifecycle as well as search and matching frictions in the labor market. In our model, public pension programs alter the age composition of the labor force by inducing the jobless elderly to retire. By requiring a long history of labor market attachment in order to receive benefits, these programs raise the future value of current employment for the young which serves to redistribute bargaining power, and hence income, from the young to the old. The paper argues that pension programs through their effect on the wage structure, the age distribution of the labor force and firm entry decisions, can improve the operation of the labor market and might therefore be desirable on efficiency grounds alone (abstracting from equity and insurance motives). It shows that a pension program that is funded from within the economy can lead to higher welfare than having no pension program at all.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10681.
Date of creation: 25 Jul 2003
Date of revision:
Contact details of provider:
Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
More information through EDIRC
pensions; search; labor market efficiency; unemployment; lifecycle;
Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-07-29 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joydeep Bhattacharya & Casey B. Mulligan & Robert R. Reed, 2004.
"Labor Market Search and Optimal Retirement Policy,"
Western Economic Association International, vol. 42(4), pages 560-571, October.
- Bhattacharya, Joydeep & Mulligan, Casey & Reed, Robert, 2003. "Labor Market Search and Optimal Retirement Policy," Staff General Research Papers 10251, Iowa State University, Department of Economics.
- Joydeep Bhattacharya & Casey B. Mulligan & Robert R. Reed III, 2001. "Labor Market Search and Optimal Retirement Policy," NBER Working Papers 8591, National Bureau of Economic Research, Inc.
- Juergen Jung, 2008. "The Timing of Redistribution," Caepr Working Papers 2008-015, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
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