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Education, demographics, and the economy

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  • JAAG, CHRISTIAN

Abstract

This paper deals with two issues concerning the effects of population aging on education decisions in the presence of a PAYG pension system: We first analyze the effects of an aging population per se on individual skill choices and continuous education and the production structure. Second, we study the implications of postponed retirement, which is often proposed as a measure to cope with the economic challenges of increased longevity. Our study uses a dynamic general equilibrium framework with overlapping generations and probabilistic aging. Themodel allows for capital-skill complementarity in the production of final output. As a response to population aging, in a small open economy with a fixed interest rate, our first simulation shows that GDP is depressed due to an adverse effect on skill choice and labor supply. We then introduce postponed retirement as a potentially dampening policy measure due to its encouragement of human capital formation. However, since there is less private saving in this scenario, the overall effect on GDP is even worse than in the pure aging scenario.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Journal of Pension Economics and Finance.

Volume (Year): 8 (2009)
Issue (Month): 02 (April)
Pages: 189-223

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Handle: RePEc:cup:jpenef:v:8:y:2009:i:02:p:189-223_00

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  1. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change And Wage Inequality," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1055-1089, November.
  2. David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
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Cited by:
  1. Christian Keuschnigg & Mirela Keuschnigg & Christian Jaag, 2009. "Aging and the Financing of Social Security in Switzerland," University of St. Gallen Department of Economics working paper series 2009 2009-26, Department of Economics, University of St. Gallen.

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