Working Paper: NBER ID: w18856
Authors: Edgar Vogel; Alexander Ludwig; Axel Börsch-Supan
Abstract: Projected demographic changes in industrialized and developing countries vary in extent and timing but will reduce the share of the population in working age everywhere. Conventional wisdom suggests that this will increase capital intensity with falling rates of return to capital and increasing wages. This decreases welfare for middle aged agents with assets accumulated for retirement. This paper addresses three important adjustments channels to dampen these detrimental effects of ageing: investing abroad, endogenous human capital formation and increasing the retirement age. Although non of these suggestions is new in itself, we examine their effects jointly in one coherent model. Our quantitative finding is that openness has a relatively mild effect. In contrast, endogenous human capital formation in combination with an increase in the retirement age has strong effects. Under these adjustments maximum welfare losses of demographic change for households alive in 2010 are reduced by about 3 percentage points.
Keywords: Aging; Pension Reform; Human Capital; Retirement Age
JEL Codes: C68; E17; E25; J11; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing the retirement age (J26) | higher labor market participation among the elderly (J26) |
| endogenous human capital formation (J24) | mitigates welfare losses (D69) |
| combination of increasing the retirement age and enhancing human capital formation (J24) | strong welfare effects (D69) |
| demographic changes (J11) | retirement age adjustments (J26) |
| retirement age adjustments (J26) | welfare outcomes (I38) |
| endogenous human capital formation (J24) | welfare outcomes (I38) |