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The interplay between trade unions and the social security system in an aging economy

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  • Friese, Max

Abstract

This paper investigates how demographic change affects the financial sustainability of a defined benefit pay-as-you-go social security system in an environment with collective bargaining on the labor market. Temporary equilibrium analysis shows that the contribution rate decreases, if the old-age dependency ratio rises. The government balances the social security budget by aiming indirectly at a higher level of employment. In the intertemporal equilibrium the opposite applies. The government increases the contribution rate due to additional effects of demographic change on capital accumulation and labor demand. In contrast to a perfect labor market scenario, the imposed financing burden from an aging society is overcompensated by favorable labor market effects on the social security budget.

Suggested Citation

  • Friese, Max, 2019. "The interplay between trade unions and the social security system in an aging economy," Thuenen-Series of Applied Economic Theory 148 (revised version), University of Rostock, Institute of Economics, revised 2019.
    • Handle: RePEc:zbw:roswps:148r
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    More about this item

    Keywords

    demographic change; PAYG pension; social security; trade union; collective bargaining; unemployment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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