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The Role of Endogenous Skill Choice in an Aging Economy

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Author Info
Christian Jaag (IFF-HSG)

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Abstract

This chapter analyzes the effects of an aging population on individual skill choices and the production structure by means of a dynamic general equilibrium model with overlapping generations and probabilistic aging. The model allows for capital-skill complementarity, which strongly affects the outcomes in a small open economy setting vs. a closed (or equivalently worldwide) economy. In an open economy with a fixed real interest rate, the necessary increase in the contribution rate discourages labor supply and depresses GDP. With a variable real interest rate, however, capital usage increases and - by the capital- skill complementarity - also employment of high skilled labor. The mobilization of highly productive labor gives a boost to GDP. Hence, the often cited adverse effects of aging are mitigated and can be overcome when taking into account a more realistic production structure.

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Paper provided by EconWPA in its series Public Economics with number 0505005.

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Length: 25 pages
Date of creation: 17 May 2005
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Handle: RePEc:wpa:wuwppe:0505005

Note: Type of Document - pdf; pages: 25
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Related research
Keywords: Aging Human Capital Demographics Education Capital-Skill Complementarity Life-Cycle

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Find related papers by JEL classification:
D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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