The Social Security System, the Provision of Human Capital, and the Structure of Compensation.

In this paper the author examines the effect of the current social security system on the structure of compensation that a wealth- maximizing worker selects. It is shown that the current method of benef it determination encourages an upward-sloping wage profile and that the social security system alters the mix of wage and pension payments. In addition, the intragenerational transfers of the social security system alter the level of investment in human capital. As a result, the social security system reduces the disparity of income within the economy. Copyright 1987 by University of Chicago Press.