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The Genesis of the Golden Age - Accounting for the Rise in Health and Leisure

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  • Carl-Johan Dalgaard

    (Department of Economics, University of Copenhagen)

  • Holger Strulik

    (University of Goettingen, Department of Economics)

Abstract

We develop a life cycle model featuring an optimal retirement decision in the presence of physiological aging. In modeling the aging process we draw on recent advances within the fields of biology and medicine. In the model individuals decide on optimal consumption during life, the age of retirement, and (via health investments) the timing of their death. Accordingly, "years in retirement" is fully endogenously determined. Using the model we can account for the evolution of age of retirement and longevity across cohorts born between 1850 and 1940 in the US. Our analysis indicates that 2/3 of the observed increase in longevity can be accounted for by wage growth, whereas the driver behind the observed rising age of retirement appears to have been technological change in health care. Both technology and income contribute to the rise in years in retirement, but the contribution from income is slightly greater.

Suggested Citation

  • Carl-Johan Dalgaard & Holger Strulik, 2012. "The Genesis of the Golden Age - Accounting for the Rise in Health and Leisure," Discussion Papers 12-10, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:1210
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    More about this item

    Keywords

    Aging; Longevity; Retirement; Health; Health Technology;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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