Social Security and Intergenerational Redistribution

Many countries around the world have large public pension programs with signif-icant cross-cohort redistribution. This paper provides a rationale for such programsin a lifecycle framework with search and matching frictions in the labor market. Inthe model, public pension programs alter the age composition of the labor force byinducing the jobless elderly to retire. This improves the allocation of workers to jobs,raises …rm entry and may also improve welfare. By requiring a long history of labormarket attachment as a precondition to receiving bene…ts, these programs raise the fu-ture value of current employment for the young. This redistributes bargaining strengthand income from the young to the old.[...]