Social Security: Universal versus Earnings‐Dependent Benefits

30 Pages Posted: 19 Sep 2012

Date Written: October 2012


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.

Suggested Citation

Soares, Jorge, Social Security: Universal versus Earnings‐Dependent Benefits (October 2012). Economica, Vol. 79, Issue 316, pp. 611-640, 2012, Available at SSRN: or

Jorge Soares (Contact Author)

University of Delaware ( email )

Department of Economics
Purnell Hall Room 315
Newark, DE 19716
United States
(302) 831 1914 (Phone)
(302) 831 6968 (Fax)


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