Life Expectancy, Labor Supply, and Long-Run Growth: Reconciling Theory and Evidence

Holger Strulik and Katharina Werner

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: We set up a three-period overlapping generation model in which young individuals allocate their time to schooling and work, healthy middle aged individuals allocate their time to leisure and work and their income to consumption and savings for retirement, and old age individuals live off their savings. The three period setup allows us to distinguish between longevity and active life expectancy (i.e. the expected length of period 1 and 2). We show that individuals optimally respond to a longer active life by educating more and, if the labor supply elasticity is high enough, by supplying less labor. We calibrate the model to US data and show that the historical evolution of increasing education and declining labor supply can be explained as an optimal response to increasing active life expectancy. We integrate the theory into a unified growth model and reestablish increasing life expectancy as an engine of long-run economic development.

Keywords: longevity; active life expectancy; education; hours worked; economic growth (search for similar items in EconPapers)
JEL-codes: E20 I25 J22 O10 O40 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2012-03
New Economics Papers: this item is included in nep-age, nep-dge, nep-evo, nep-hea and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Life expectancy, labor supply, and long-run growth: Reconciling theory and evidence (2012)
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