Pension Systems and Intragenerational Redistribution When Labor Supply is Endogenous

Abstract

It is usually thought that a Beveridgean pension system redistributes income more than a Bismarckian one, since it ensures replacement ratios that decrease with income. We check the validity of this result when the fact that pension systems can redistribute also through their effects on labor income is taken into account. Labor market institutions turn out to be crucial. First we study an economy with a competitive labor market: quite surprisingly, inequality is unaffected by a reallocation of funds towards the Beveridgean system. Then we introduce a minimum wage that creates unemployment on the unskilled labor market: in this case the Beveridgean system is proved to reduce inequality.

Keywords: Social Security, Intragenerational redistribution, Basic Pension, Beveridgean pension system, Bismarckian pension system

JEL Classification: H55