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Lifetime labor supply and human capital investment

  • Rodolfo E. Manuelli
  • Ananth Seshadri
  • Yongseok Shin

We develop a model of retirement and human capital investment to study the effects of tax and retirement policies. Workers choose the supply of raw labor (career length) and also the human capital embodied in their labor. Our model explains a significant fraction of the US-Europe difference in schooling and retirement. The model predicts that reforms of the European retirement policies modeled after the US can deliver 15–35 percent gains in per-worker output in the long run. Increased human capital investment in and out of school accounts for most of the gains, with relatively small changes in career length.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2012-004.

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Date of creation: 2012
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Handle: RePEc:fip:fedlwp:2012-004
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  1. Rust, J., 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Working papers 9430, Wisconsin Madison - Social Systems.
  2. David Neumark & Wendy A. Stock, 1999. "Age Discrimination Laws and Labor Market Efficiency," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 1081-1110, October.
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  7. Edward C. Prescott & Johanna Wallenius, 2012. "Aggregate labor supply," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Oct.
  8. Chad Turner & Robert Tamura & Sean Mulholland & Scott Baier, 2007. "Education and income of the states of the United States: 1840–2000," Journal of Economic Growth, Springer, vol. 12(2), pages 101-158, June.
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  11. Susumu Imai & Michael P. Keane, 2004. "Intertemporal Labor Supply and Human Capital Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 601-641, 05.
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