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

38 Pages Posted: 4 Aug 2009

See all articles by Alexander Ludwig

Alexander Ludwig

Goethe University Frankfurt

Edgar Vogel

Deutsche Bundesbank; Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA)

Date Written: April 15, 2009

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 and that education always increases 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.

Keywords: Mortality, Fertility, Aging, Education, OLG

JEL Classification: I12, I20, J11, J24, O11

Suggested Citation

Ludwig, Alexander and Vogel, Edgar, Mortality, Fertility, Education and Capital Accumulation in a Simple OLG Economy (April 15, 2009). MEA Discussion Paper No. 179-2009, Available at SSRN: https://ssrn.com/abstract=1443957 or http://dx.doi.org/10.2139/ssrn.1443957

Alexander Ludwig (Contact Author)

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Edgar Vogel

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Strasse 14
Frankfurt am Main, 60431
Germany

HOME PAGE: http://www.bundesbank.de

Max Planck Society for the Advancement of the Sciences - Munich Center for the Economics of Aging (MEA) ( email )

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Munich, 80799
Germany

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