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Mortality, Fertility, Education and Capital Accumulation in a Simple OLG Economy

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  • Alexander Ludwig

    ()

  • Edgar Vogel

    ()
    (Munich Center for the Economics of Aging (MEA))

Abstract

We develop a simple overlapping generations model to analytically show that population aging leads to increased educational efforts through a general equilibrium effect. The key mechanism at work in the model is that scarcity of raw labor increases the rate of return to human capital relative to physical capital. While a reduction in the birth rate is shown to unambiguously increase educational efforts, increases in the survival rate have ambiguous effects. Falling birth rates unambiguously increase capital per worker while the effects of rising survival rates are ambiguous. When evaluating our model using a calibrated version we find that education always in- creases if life expectancy rises but the effect on the capital stock is still ambiguous and depends on the parameters of the model. We conclude that our model is a useful laboratory to highlight the various potentially offsetting effects at work in models with endogenous education and overlapping generations which is key for understanding the magnitudes of results of applied quantitative general equilibrium analyses employing such a framework.

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Bibliographic Info

Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 09179.

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Date of creation: 20 Apr 2009
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Handle: RePEc:mea:meawpa:09179

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Postal: Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy, Amalienstraße 33, 80799 München, Germany
Phone: +49/89/38602.442
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References

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  1. Gary Hansen & Selahattin Imrohoroglu, 2008. "Consumption over the Life Cycle: The Role of Annuities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 566-583, July.
  2. David M. Cutler & Angus S. Deaton & Adriana Lleras-Muney, 2006. "The Determinants of Mortality," Working Papers id:359, eSocialSciences.
  3. Fougere, Maxime & Merette, Marcel, 1999. "Population ageing and economic growth in seven OECD countries," Economic Modelling, Elsevier, vol. 16(3), pages 411-427, August.
  4. Ludwig, Alexander & Schelkle, Thomas & Vogel, Edgar, 2010. "Demographic Change, Human Capital and Welfare," MEA discussion paper series 10196, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  5. Browning, Martin & Hansen, Lars Peter & Heckman, James J., 1999. "Micro data and general equilibrium models," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 8, pages 543-633 Elsevier.
  6. Kalemli-Ozcan, Sebnem & Ryder, Harl E. & Weil, David N., 2000. "Mortality decline, human capital investment, and economic growth," Journal of Development Economics, Elsevier, vol. 62(1), pages 1-23, June.
  7. Zhang, Junsen & Zhang, Jie & Lee, Ronald, 2001. "Mortality decline and long-run economic growth," Journal of Public Economics, Elsevier, vol. 80(3), pages 485-507, June.
  8. Boucekkine, Raouf & de la Croix, David & Licandro, Omar, 2000. "Vintage Human Capital, Demographic Trends and Endogenous Growth," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2000007, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  9. Alexander Ludwig & Thomas Schelkle & Edgar Vogel, 2011. "Online Appendix to "Demographic Change, Human Capital and Welfare"," Technical Appendices 08-168, Review of Economic Dynamics.
  10. Heijdra, Ben J. & Romp, Ward E., 2009. "Human capital formation and macroeconomic performance in an ageing small open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 725-744, March.
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Citations

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Cited by:
  1. Andreas Irmen, 2009. "Population Aging and the Direction of Technical Change," CESifo Working Paper Series 2888, CESifo Group Munich.
  2. Alexander Ludwig & Thomas Schelkle & Edgar Vogel, 2012. "Demographic Change, Human Capital and Welfare," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(1), pages 94-107, January.
  3. Carlotta Balestra & Davide Dottori, 2012. "Aging society, health and the environment," Journal of Population Economics, Springer, vol. 25(3), pages 1045-1076, July.
  4. Hansen, Casper Worm, 2012. "The effect of life expectancy on schooling: Evidence from the international health transition," Discussion Papers of Business and Economics 6/2012, Department of Business and Economics, University of Southern Denmark.
  5. Vogel, Edgar & Ludwig, Alexander & Börsch-Supan, Axel, 2011. "Aging and Pension Reform in a Two-Region World: The Role of Human Capital," MEA discussion paper series 11246, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  6. Casper Hansen & Lars Lønstrup, 2012. "Can higher life expectancy induce more schooling and earlier retirement?," Journal of Population Economics, Springer, vol. 25(4), pages 1249-1264, October.
  7. Hansen, Casper Worm & Lønstrup, Lars, 2011. "Life expectancy and income: The Ben-Porath mechanism revisited," Discussion Papers of Business and Economics 3/2011, Department of Business and Economics, University of Southern Denmark.
  8. Jan Hagemejer & Krzysztof Makarski & Joanna Tyrowicz, 2013. "Efficiency of the pension reform: the welfare effects of various fiscal closures," Working Papers 2013-23, Faculty of Economic Sciences, University of Warsaw.
  9. Elgin, Ceyhun & Tumen, Semih, 2012. "Can sustained economic growth and declining population coexist?," Economic Modelling, Elsevier, vol. 29(5), pages 1899-1908.

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