Aging and Pension Reform: Extending the Retirement Age and Human Capital Formation

55 Pages Posted: 21 Sep 2012

See all articles by Edgar Vogel

Edgar Vogel

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

Alexander Ludwig

Goethe University Frankfurt

Axel H. Börsch-Supan

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

Multiple version iconThere are 3 versions of this paper

Date Written: June 13, 2012

Abstract

Projected demographic changes in industrialized countries will reduce the share of the working-age population. Analyses based on standard OLG models predict that these changes will increase the capital-labor ration. Hence, rates of return to capital decrease and wages increase with adverse welfare consequences for current middle aged asset rich agents.

This paper addresses three important adjustments channels to dampen these detrimental effects of demographic change: investing abroad, endogenous human capital formation and increasing the retirement age. 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: population aging, human capital, welfare, pension reform, retirement age, open economy

JEL Classification: C68, E17, E25, J11, J24

Suggested Citation

Vogel, Edgar and Ludwig, Alexander and Börsch-Supan, Axel H., Aging and Pension Reform: Extending the Retirement Age and Human Capital Formation (June 13, 2012). MEA Discussion Paper No. 257-2012, Available at SSRN: https://ssrn.com/abstract=2149458 or http://dx.doi.org/10.2139/ssrn.2149458

Edgar Vogel (Contact Author)

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 )

Amalienstrasse 33
Munich, 80799
Germany

Alexander Ludwig

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Axel H. Börsch-Supan

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

Amalienstrasse 33
Munich, 80799
Germany

HOME PAGE: http://www.mea.mpisoc.mpg.de

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