In models with exogenous labor supply, a reallocation of funds from a wage-related pension to a basic pension affects inequality through changes in the pension paid, redistributing resources from the rich to the poor. We show that in a model with endogenous labor supply, another effect is present: indeed changes of the benefit formula have an impact on the labor/leisure choice. This effect goes in the opposite direction of the standard effect that is also present in models with exogenous labor supply and it could be quite relevant, also depending on the different assumptions on the working of the labor market. In particular, under specific assumptions on the utility and the production functions, inequality is unaffected by a reallocation of funds towards the basic pension. However this result changes if a minimum wage is introduced, since in this case inequality turns out to be reduced.
Pension systems and intragenerational redistribution when labor supply is endogenous
SOMMACAL, ALESSANDRO
2006
Abstract
In models with exogenous labor supply, a reallocation of funds from a wage-related pension to a basic pension affects inequality through changes in the pension paid, redistributing resources from the rich to the poor. We show that in a model with endogenous labor supply, another effect is present: indeed changes of the benefit formula have an impact on the labor/leisure choice. This effect goes in the opposite direction of the standard effect that is also present in models with exogenous labor supply and it could be quite relevant, also depending on the different assumptions on the working of the labor market. In particular, under specific assumptions on the utility and the production functions, inequality is unaffected by a reallocation of funds towards the basic pension. However this result changes if a minimum wage is introduced, since in this case inequality turns out to be reduced.
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