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

Max Friese ()

No 148, Thuenen-Series of Applied Economic Theory from University of Rostock, Institute of Economics

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.

Keywords: demographic change; PAYG pension; social security; trade union; collective bargaining; unemployment (search for similar items in EconPapers)
JEL-codes: E24 H55 J11 J51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dge and nep-mac
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:roswps:148

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