Social Security: Universal Versus Earnings‐dependent Benefits

Abstract

I compare the welfare implications of Bismarckian (earnings‐dependent benefits) and Beveridgean (universal benefits) social security systems. Agents are better off with a Beveridgean system than with a comparable Bismarckian system. In an environment with intragenerational homogeneity, the latter results in a larger decrease in net wages; with intragenerational skill heterogeneity, most agents benefit from the more redistributive Beveridgean system. When agents vote for the replacement rates, with intragenerational homogeneity, the resulting Bismarckian system is larger than the Beveridgean system. With intragenerational skill heterogeneity, the Beveridgean system is larger. Overall, agents are worse off with the larger system.

Public pensions and the intergenerational politics of aging societies

“… 11. Conde-Ruiz and Profeta (2007) treat redistribution and program size as separate dimensions, but then require separate votes on each. Soares (2011) compares voter choices within redistributive (Beveridgean) and earnings-based (Bismarckian) arrangements. With a similar restriction, Bossi and Gumus (2013) examine the choice between intra- and intergenerational transfers in light of inequality and mobility. …”