50 is the New 30 - Long-Run Trends of Schooling and Retirement Explained by Human Aging

Center for European, Governance and Economic Development Research Discussion Paper No. 152

34 Pages Posted: 3 Apr 2013

See all articles by Holger Strulik

Holger Strulik

University of Goettingen (Göttingen) - School of Law, Economics, Social Sciences

Katharina Werner

University of Goettingen (Göttingen) - Department of Economics

Date Written: April 2, 2013

Abstract

Workers in the US and other developed countries retire no later than a century ago and spend a significantly longer part of their life in school, implying that they stay less years in the work force. The facts of longer schooling and simultaneously shorter working life are seemingly hard to square with the rationality of the standard economic life cycle model. In this paper we propose a novel theory, based on health and aging, that explains these long-run trends. Workers optimally respond to a longer stay in a healthy state of high productivity by obtaining more education and supplying less labor. Better health increases productivity and amplifies the return on education. The health accelerator allows workers to finance educational efforts with less forgone labor supply than in the previous state of shorter healthy life expectancy. When both life-span and healthy life expectancy increase, the health effect is dominating and the working life gets shorter if the preference for leisure is sufficiently strong or the return on education is sufficiently large. We calibrate an extended version of the model and show that it is capable to predict the historical trends of schooling and retirement.

Keywords: healthy life expectancy, longevity, education, retirement, labor supply, compression of morbidity

JEL Classification: E20, I25, J22, O10, O40

Suggested Citation

Strulik, Holger and Werner, Katharina, 50 is the New 30 - Long-Run Trends of Schooling and Retirement Explained by Human Aging (April 2, 2013). Center for European, Governance and Economic Development Research Discussion Paper No. 152 , Available at SSRN: https://ssrn.com/abstract=2243538 or http://dx.doi.org/10.2139/ssrn.2243538

Holger Strulik (Contact Author)

University of Goettingen (Göttingen) - School of Law, Economics, Social Sciences ( email )

Germany

Katharina Werner

University of Goettingen (Göttingen) - Department of Economics ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany

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