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The destabilizing effects of the social norm to work under a social security system

Rodolphe Dos Santos Ferreira (), Teresa Lloyd-Braga () and Leonor Modesto ()

Mathematical Social Sciences, 2015, vol. 76, issue C, 64-72

Abstract: We study employment dynamics in an OLG model with unemployment benefits financed by taxing wages, and with a defined contribution plan. The novelty with respect to recent studies of the effects of social security in this context is that we introduce a social norm to work, shaping the worker’s participation decision, and hence affecting the reservation wage. We find that a strong social norm to work destabilizes conventional wisdom by reversing the negative effects of social security on employment, and destabilizes the economy by facilitating the emergence of endogenous fluctuations.

Date: 2015
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