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Can varying social insurance contributions improve labour market efficiency ?

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  • DREZE, Jacques

    (CORE, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium)

Abstract

This paper, prepared for an lEA Conference in honour of James Meade on The Economics of Partnership, analyses the rationale and prospects for using cyclical variations in Social Insurance Contributions (SIC) as a means to reconcile wage flexibility with efficient risk-sharing between capital and labour. The idea of cyclical variations in SIC was introduced by Meade in 1938 with the objective of reconciling wage flexibility with stability of aggregate demand. The emphasis here is placed instead on the (complementary) risk-sharing aspect. A minimal theoretical model of a productive economy with a stock market is used to characterise wages compatible with efficient risk-sharing. Transfers corresponding to the difference between these risk-sharing wages and competitive wages have zero present value on capital markets and could be implemented in alternative ways, the practical merits of which are discussed. A specific proposal is singled out for consideration. The paper also contains a brief discussion of another approach, namely the collection of SIC as profit shares a la Weitzman.

Suggested Citation

  • DREZE, Jacques, 1992. "Can varying social insurance contributions improve labour market efficiency ?," LIDAM Discussion Papers CORE 1992006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:1992006
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