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50 is the new 30—long-run trends of schooling and retirement explained by human aging

Holger Strulik () and Katharina Werner ()

Journal of Economic Growth, 2016, vol. 21, issue 2, 165-187

Abstract: 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 intertemporal elasticity of substitution for leisure is sufficiently small or the return on education is sufficiently large. We calibrate the model and show that it is able to predict the historical trends of schooling and retirement.

Keywords: Healthy life expectancy; Longevity; Education; Retirement; Labor supply; Compression of morbidity (search for similar items in EconPapers)
JEL-codes: E20 I25 J22 O10 O40 (search for similar items in EconPapers)
Date: 2016
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Working Paper: 50 is the new 30: Long-run trends of schooling and retirement explained by human aging (2013) Downloads
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Handle: RePEc:kap:jecgro:v:21:y:2016:i:2:d:10.1007_s10887-015-9124-1