Social Security Policy and International Labor and Capital Mobility

This paper studies the connection between social security policy and international factor movements within a two- country overlapping-generations model with production. Incentives for factor movements emerge because one country relies on private savings while the other country operates a social security system. The pattern of migration depends on the steady-state capital-labor ratios compared to the Golden Rule capital-labor ratios. Incentives to migrate do not vanish in the long-run and one country might empty out. Capital always moves to the social-security country. Without compensation neither labor nor capital mobility represents a Pareto improvement for the economy