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Population Ageing and Extension of Retirement Age(Quantitative Analysis using Overlapping Generation Model) (in Korean)

JaeHwa Hong () and Taesu Kang
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JaeHwa Hong: the Faculty of Economics, Seoul National University

No 2015-10, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This paper studies the quantitative effects of population ageing caused mainly by declines in fertility and mortality rates in the Korean economy. It also examines the overall macroeconomic effects of the extension of mandatory retirement age on an ageing economy. A decrease in mortality rate raises aggregate capital input in the economy since individuals save more for retirement due to the longer life expectancy and the enlarged proportion of the middle- and older-aged population in the total population. In contrast, an increase in aggregate labor is negligible since most of the population increases are attributable to the increase in the population over 60, most of whom are out of the labor force. A decrease in the fertility rate reduces both aggregate capital and labor inputs because of the reduction in total population, especially in young and middle aged groups. With a reasonable calibration (the mortality rate decreases by 1% a year; and the population growth rate declines from 0.7% to 0.3%), our model forecasts that the aggregate production will decrease by 15% and the pension system will run a big budget deficit with more retirees and smaller number of workers. The model also predicts that the introduction of extension of retirement age (3 years, from 57 to 60) can alleviate the negative effects of population ageing by increasing both aggregate capital and labor inputs and reducing pension deficits.

Keywords: Population ageing; Extension of retirement age; Overlapping generation model (search for similar items in EconPapers)
JEL-codes: E17 J11 J26 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2015-04-08
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