Human Capital Accumulation and the Macroeconomy in an Ageing Society

Abstract

How do population ageing shocks affect the long-run macroeconomic performance of an economy? To answer this question we build a general equilibrium overlapping generations model of a closed economy featuring endogenous factor prices. Finitely-lived individuals are endowed with perfect foresight and make optimal choices over the life cycle. In addition to selecting age profiles for consumption and the hours of time supplied to the labour market, they also choose their schooling level and retirement age. Human capital is accumulated as a result of work experience, the extent of which is determined by the intensity of labour supply. As the agent gets older, biological deterioration sets in and human capital depreciates at an increasing rate. This ultimately prompts the agent to withdraw from the labour market. The micro-We are much indebted to Fabian Kindermann for computational advice on efficient Matlab and Fortran programming, and to Jochen Mierau for providing us with a detailed survey of the human capital literature. This paper was presented at the

Macroeconomics, Aging, and Growth

“…Trends in health status are particularly important if the age at retirement is made endogenous. Heijdra and Reijnders (2012) demonstrate the importance of these points by analyzing several different demographic/health scenarios, each leading to a different conclusion.…”

Life in Shackles? The Quantitative Implications of Reforming the Educational Loan System

“…Conditional on the agent's LBD coefficient γ, more experience is gained the more the individual works (though at a diminishing rate as 0 < α < 1). The economic ageing effect is captured by the term 1 − δ h u and results from the fact that the depreciation rate on human capital is taken to be increasing in age (as in Heijdra and Reijnders, 2012). In particular for M ≤ u ≤Ū we postulate:…”

Stimulating Annuity Markets

“…Heijdra and Reijnders (2012) introduce an age-dependent human capital depreciation rate and argue that it captures economic (as opposed to biological) ageing. We assume that all individuals are endowed with the same level of initial human capital at birth.…”

“…To this end, we use the imperfect-annuity-market models of Hansen andİmrohoroglu (2008) and Heijdra and Mierau (2012) but extend them to allow for endogenous human-capital accumulation along the lines of Ludwig et al (2012) and Heijdra and Reijnders (2012). Incorporating the human capital channel into the analysis is important for several reasons.…”