Knowledge that Transforms

The future of U.S. Social Security system is examined with consideration given to impact of political forces. The Social Security Administrations projections of future benefit levels are reviewed. The authors then present a theoretical model that postulates first as number of retirees increases relative to number of workers retirees acquire additional political power which can be used to raise individual However at same time cost of increasing individual benefits is greater and this may lead to a lowering of individual benefits. The results suggest that the benefits received by baby-boom generation will be significantly lower than those projected by Social Security Administration. (EXCERPT)

Fluctuations in the equilibrium rate of unemployment can only be understood within a of the natural or equilibrium rate. It is not enough to say that unemployment is the difference between supply and demand in the labor market, though of course it always will be. In equilibrium, no participants in the market can have an unexploited opportunity to make themselves better off. At the equilibrium unemployment rate, employers cannot obtain labor at lower cost by offering work at below the market wage to the unemployed. Unemployed workers cannot raise their effective real incomes by taking lower wages in exchange for immediate employment. The task of the is to explain why any unemployment remains at all when these conditions are satisfied. Part of this problem has been studied in detail in the search theory of unemployment -- once a worker becomes unemployed, it is reasonably well understood why the worker does not become employed again immediately. The of why people become unemployed in the first place is less well developed and is the main concern of this paper. Most of the unemployed are looking for new work because their previous jobs ran out. Consequently, the main ingredient of a of the flow of workers into unemployment is a of the duration of employment. Such a is developed here, along reasonably standard lines.

This paper is one in a series directed toward the construction, with certain modern building blocks, of a non-monetary theory of employment fluctuation in market economies. The closed-economy model here parallels the open-economy model in Phelps (1988). The objective is a plausible theory that helps to account for some or all of the long swings in economic activity over recent decades. In fact, this non-monetary theory has grown out of one of the models used by Fitoussi and Phelps (1988) to account for the 1980s depression over much of the world, a slump that demand-driven models are hard-pressed to explain.

Monetary theory