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Anyone for Social Security Reform?

  • Series
    Spatial Economics Seminar
  • Speaker(s)
    Partha Sen (Delhi University, India)
  • Field
    Spatial Economics
  • Location
    Tinbergen Institute Amsterdam, Room 1.01
  • Date and time

    December 11, 2018
    14:45 - 15:45

A reform of a pay-as-you-go social security would make the recipients of pensions worse off and the working generations better off (in a dynamically efficient economy without altruism). Why is there reluctance across all age groups to support such reforms? There are reasons like insurance properties of these schemes. I propose an alternative. In a two sector setting the reform, at given factor prices, would make the young better off. But the old consume labor-intensive goods like healthcare etc. and thus the reform causes labor demand to fall. The reform reduces wages and this could dominate the lower social security payments for the young. Thus on any date both the young and old oppose the reform, although the reform would make the as yet unborn generations better off (the new steady welfare, with a higher capital stock, is definitely higher).

JEL-Codes: H550.
Keywords: social security reform, two sector models, labor market.