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Population, Pensions and Endogenous Economic Growth

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  • Heer, Burkhard
  • Irmen, Andreas

Abstract

We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy. First, we establish that the net effect of a decline in population growth on the growth rate of per-capita magnitudes is positive and quantitatively significant. Second, we find that the pension system matters both for the growth performance and for individual welfare. Third, we show that the assessment of pension reform proposals may be different in an endogenous growth framework as opposed to the standard framework with exogenous growth.

Suggested Citation

  • Heer, Burkhard & Irmen, Andreas, 2009. "Population, Pensions and Endogenous Economic Growth," CEPR Discussion Papers 7172, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7172
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    Citations

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    Cited by:

    1. Heer, Burkhard & Polito, Vito & Wickens, Michael R., 2020. "Population aging, social security and fiscal limits," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).
    2. Ono, Tetsuo & Uchida, Yuki, 2016. "Pensions, education, and growth: A positive analysis," Journal of Macroeconomics, Elsevier, vol. 48(C), pages 127-143.
    3. Gehringer, Agnieszka & Prettner, Klaus, 2019. "Longevity And Technological Change," Macroeconomic Dynamics, Cambridge University Press, vol. 23(4), pages 1471-1503, June.
    4. Oliwia Komada & Krzysztof Makarski & Joanna Tyrowicz, 2017. "Welfare effects of fiscal policy in reforming the pension system," GRAPE Working Papers 11, GRAPE Group for Research in Applied Economics.
    5. Heer, Burkhard & Irmen, Andreas, 2014. "Population, pensions, and endogenous economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 46(C), pages 50-72.
    6. Alexander Ludwig & Thomas Schelkle & Edgar Vogel, 2007. "Demographic Change, Human Capital and Endogenous Growth," MEA discussion paper series 07151, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    7. Du, C. & Muysken, J. & Sleijpen, O.C.H.M., 2010. "Economy wide risk diversification in a three-pillar pension system," Research Memorandum 055, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    8. Burkhard Heer & Mark Trede, 2020. "Age-Specific Entrepreneurship and PAYG Public Pensions in Germany," CQE Working Papers 9120, Center for Quantitative Economics (CQE), University of Muenster.
    9. Ross Guest, 2013. "Population Ageing and Productivity: Implications and Policy Options for New Zealand," Treasury Working Paper Series 13/21, New Zealand Treasury.
    10. Jan Acedański & Julia Włodarczyk, 2018. "Demographics, retirement age, and real interest rates in Poland," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 10(4), pages 355-385, December.
    11. Woodland, A., 2016. "Taxation, Pensions, and Demographic Change," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 713-780, Elsevier.
    12. Burkhard Heer & Mark Trede, 2020. "Age-Specific Entrepreneurship and PAYG Public Pensions in Germany," CQE Working Papers 9120, Center for Quantitative Economics (CQE), University of Muenster.
    13. Süssmuth, Bernd & Irmen, Andreas & Heer, Burkhard, 2020. "Taxation, Automation Capital, and the Functional Income Distribution," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224572, Verein für Socialpolitik / German Economic Association.
    14. de Freitas, Carlos Eduardo & Paes, Nelson Leitão, 2019. "The collapse of Brazilian Social Security: Macroeconomic impacts of the increase of the minimum age of PEC nº 287/2016 reform," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 39(1), July.
    15. Edle von Gaessler, Anne & Ziesemer, Thomas, 2017. "Ageing, human capital and demographic dividends with endogenous growth, labour supply and foreign capital," MERIT Working Papers 2017-043, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    16. Ross Guest, 2014. "Population ageing and productivity: A survey with implications for New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 48(2), pages 153-168, August.
    17. Burkhard Heer & Andreas Irmen & Bernd Süssmuth, 2020. "Explaining the Decline in the US Labor Share: Taxation and Automation," CREA Discussion Paper Series 20-20, Center for Research in Economic Analysis, University of Luxembourg.
    18. Marius Bickmann, 2017. "Demographic Change and Labor Mobility," 2017 Meeting Papers 259, Society for Economic Dynamics.

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    More about this item

    Keywords

    capital accumulation; demographic transition; growth; pension reform;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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