Abstract
This paper analyzes the model effects of a unification of public pension systems financed on a payas- you-go basis. It focuses on a potentially inefficient allocation of labor, which may be caused by permitting households to choose repeatedly between public pension systems.
The model examines perfect and imperfect cases of labor mobility. Under perfect labor mobility, the only level of social-security payments that satisfies the efficiency conditions is zero.
The model shows that even in the case of imperfect labor mobility, the harmonization of two PAYG systems is not a sufficient condition for the effective allocation of labor if fertility rates are observable before households decide upon their relocation. Therefore, labor mobility limits the government's ability to maintain an independent social- security system with an efficient allocation of labor.