Equilibrium Earning Premium and Pension Schemes: The Long-Run Macroeconomic Effects of the Union
32 Pages Posted: 18 Aug 2012
Date Written: July 2012
Using the theoretical framework based on the monopoly union model described in Kidd and Oswald (1987) and Jones (1987), this paper provides an explicit framework to assess the role of wage moderation in Italy in the last twenty years. There are two crucial ingredients to the model: the composition of union membership and the pension system. We show that the increase in pensioner's membership in the presence of a pay-as-you-go (PAYG) pension scheme has led unions to moderate wage claims. However, this result is reversed when we shift from a PAYG system to a fully-funded (FF) regime (recently adopted in Italy): in this case, the model predicts a rise in wages with respect to the standard model, regardless of the share of pensioners in the membership.
Keywords: union membership, pensioners, wage-pension trade-off
JEL Classification: J11, J51
Suggested Citation: Suggested Citation