Human Capital Accumulation and the Macroeconomy in an Ageing Society
41 Pages Posted: 10 Jan 2013
Date Written: December 28, 2012
Abstract
How do population ageing shocks affect the long-run macroeconomic performance of an economy? To answer this question we build a general equilibrium overlapping generations model of a closed economy featuring endogenous factor prices. Finitely-lived individuals are endowed with perfect foresight and make optimal choices over the life cycle. In addition to selecting age profiles for consumption and the hours of time supplied to the labour market, they also choose their schooling level and retirement age. Human capital is accumulated as a result of work experience, the extent of which is determined by the intensity of labour supply. As the agent gets older, biological deterioration sets in and human capital depreciates at an increasing rate. This ultimately prompts the agent to withdraw from the labour market. The microeconomic and macroeconomic effects of three ageing shocks are studied, namely a biological longevity boost, a comprehensive longevity boost, and a baby bust. Robustness checks are performed by allowing for capital market imperfections and indivisibility of labour supply.
Keywords: human capital, education, experience effects, borrowing constraints, indivisible labour, retirement, overlapping generations, demography
JEL Classification: E100, D910, O400, F410, J110
Suggested Citation: Suggested Citation
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