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Wage bargaining, social security and capital-labour substitution

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  • David De la Croix

Abstract

This paper analyses the role played by a social security system in union-firm bargaining and in the resulting wage-productivity spiral. In a first step, we derive the incidence of social security on the bargaining process itself. In a second step, the macromodel is extended to include the budget constraint of the social security system. Both the distributive effect of wage bargaining and the existence of payroll taxes reinforce capital-labour substitution. Moreover, the social security system has a pro-cyclical effect in case of a demand shock and a counter-cyclical effect in case of a wage shock.
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Suggested Citation

  • David De la Croix, 1992. "Wage bargaining, social security and capital-labour substitution," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 133, pages 73-97.
    • Handle: RePEc:bxr:bxrceb:2013/12847
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