Social Security, Unemployment, and Economic Growth

The interaction of social security (based on the two pillars unemployment insurance and public pension system), unemployment, and economic growth is considered in an overlapping generations model with endogenous growth and efficiency wages. The impact of each worker's and employer's social security contribution rate on unemployment and economic growth is derived. The general equilibrium analysis reveals the astonishing result that the employers' contribution rate to the pension system has either no effect or a positive impact on employment which contradicts the partial analysis result. Furthermore, for a given financing rule no alternative pareto-improving set of contribution rates exists.