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


  • Reichlin, Pietro


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

    1. repec:cdl:ucsbec:3-98 is not listed on IDEAS
    2. Giuseppe Bertola, 2004. "A Pure Theory of Job Security and Labour Income Risk," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 43-61.
    3. Olivier J. Blanchard & Jean Tirole, 2008. "The Joint Design of Unemployment Insurance and Employment Protection: A First Pass," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 45-77, March.
    4. repec:cdl:ucsbec:03-98 is not listed on IDEAS
    5. Jonathan Gruber & David A. Wise, 2004. "Social Security Programs and Retirement around the World: Micro-Estimation," NBER Books, National Bureau of Economic Research, Inc, number grub04-1, January.
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    More about this item


    Labor Markets; Risk; Social Security; Unemployment;

    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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