Mortality, fertility, education and capital accumulation in a simple OLG economy

Ludwig, Alexander ; Vogel, Edgar

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URN: urn:nbn:de:bsz:180-madoc-23206
Document Type: Working paper
Year of publication: 2009
The title of a journal, publication series: MEA Discussion Papers
Volume: 179
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Veröffentlichungen des MEA (Mannheim Research Institute For the Economics of Aging) > MEA Discussion Papers
Subject: 330 Economics
Classification: JEL: I12 I20 J11 J24 O11 ,
Subject headings (SWD): Mehrgenerationenmodell , Geburtenziffer , Kindersterblichkeit , Humankapital , Bildungsniveau
Keywords (English): mortality , fertility , aging , education , OLG
Abstract: We develop a simple overlapping generations model to analytically show that population aging leads to increased educational efforts through a general equilibrium effect. The key mechanism at work in the model is that scarcity of raw labor increases the rate of return to human capital relative to physical capital. While a reduction in the birth rate is shown to unambiguously increase educational efforts, increases in the survival rate have ambiguous effects. Falling birth rates unambiguously increase capital per worker while the effects of rising survival rates are ambiguous. When evaluating our model using a calibrated version we find that education always increases if life expectancy rises but the effect on the capital stock is still ambiguous and depends on the parameters of the model. We conclude that our model is a useful laboratory to highlight the various potentially offsetting effects at work in models with endogenous education and overlapping generations which is key for understanding the magnitudes of results of applied quantitative general equilibrium analyses employing such a framework.
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