Migration between countries with earnings-related and flat-rate pay-as-you-go social security systems may change human capital investments in both countries. The possibility of emigration boosts investments in human capital in the country with flat-rate benefits. Correspondingly, those expecting to migrate from the country with earnings-related benefits to a country with flat-rate benefits may reduce their investment in education. With suitably planned transfers between the two countries, allowing for migration may generate a Pareto-improvement for all current and future generations. Without transfers, either country may be unable to pay for promised benefits when labor becomes mobile. 

Panu Poutvaara

Department of Economics

P.O. Box 17 (Arkadiankatu 7)

FIN-00014 University of Helsinki

Finland
>T: +358 9 191 28797
>F: +358 9 191 28736

>E: panu.poutvaara(at)helsinki.fi