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The interplay between trade unions and the social security system in an aging economy
1 : University of Rostock
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Website
University of Rostock Faculty of Economic and Social Sciences Ulmenstraße 69 18051 Rostock -
Germany
The paper investigates the impacts of demographic change on the financial sustainability of a pay-as-you-go social security system in an economy with unemployment caused by trade unions. Using a simple two-period overlapping generations approach, it can be shown that the trade union behavior with respect to wage setting may have favorable effects on per capita contributions, if labor demand is sufficiently inelastic with respect to the wage rate. In contrast, if firm's labor demand reacts more sensitive to changes in the wage rate, the behavior of the trade union may amplify the imposed burden of demographic change on the social security system.
