Public pensions, unemployment insurance, and growth

We develop an overlapping-generations model that highlights the interaction between an unfunded pension program and an unemployment insurance program in the presence of a labor market with union wage-setting. Both programs are financed by earmarked proportional wage taxes levied on firms and their employees. The equilibrium path entails endogenous growth and involuntary unemployment. The presence of spillovers between pension programs and unemployment insurance programs has striking implications for growth policy, efficiency issues, and the transition to a fully-funded pension system (C) 2000 Elsevier Science S.A.. All rights reserved.