Mortality, Fertility, Education and Capital Accumulation in a Simple OLG Economy

Alexander Ludwig and Edgar Vogel

No 9179, MEA discussion paper series from Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy

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 in- creases 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.

JEL-codes: I12 I20 J11 J24 O11 (search for similar items in EconPapers)
Date: 2009-04-20
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Citations: View citations in EconPapers (18)

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Journal Article: Mortality, fertility, education and capital accumulation in a simple OLG economy (2010)
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