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Aging and pension reform: extending the retirement age and human capital formation

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  • Vogel, Edgar
  • Ludwig, Alexander
  • Börsch-Supan, Axel

Abstract

Projected demographic changes in industrialized countries will reduce the share of the working-age population. Analyses based on standard OLG models predict that these changes will increase the capital- labor ratio. Hence, rates of return to capital decrease and wages increase with adverse welfare consequences for current middle aged asset rich agents. This paper addresses three important adjustments channels to dampen these detrimental effects of demographic change: investing abroad, endogenous human capital formation and increasing the retirement age. Our quantitative finding is that openness has a relatively mild effect. In contrast, endogenous human capital formation in combination with an increase in the retirement age has strong effects. Under these adjustments maximum welfare losses of demographic change for households alive in 2010 are reduced by about 3 percentage points. JEL Classification: C68, E17, E25, J11, J24

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1476.

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Date of creation: Sep 2012
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Handle: RePEc:ecb:ecbwps:20121476

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Keywords: Human capital; open economy; pension reform; Population aging; retirement age; Welfare;

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Cited by:
  1. Pfeiffer, Friedhelm & Reuß, Karsten, 2013. "Education and lifetime income during demographic transition," ZEW Discussion Papers 13-021, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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