Human Capital Accumulation and the Macroeconomy in an Ageing Society

41 Pages Posted: 10 Jan 2013

See all articles by Ben J. Heijdra

Ben J. Heijdra

University of Groningen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Laurie S.M. Reijnders

University of Groningen

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

Heijdra, Ben J. and Reijnders, Laurie S.M., Human Capital Accumulation and the Macroeconomy in an Ageing Society (December 28, 2012). CESifo Working Paper Series No. 4046, Available at SSRN: https://ssrn.com/abstract=2198786 or http://dx.doi.org/10.2139/ssrn.2198786

Ben J. Heijdra (Contact Author)

University of Groningen - Department of Economics ( email )

P.O. Box 800
9700 AV Groningen
Netherlands
+31 50 363 7303 (Phone)
+31 50 363 7337 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Laurie S.M. Reijnders

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

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