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

43 Pages Posted: 1 Mar 2013

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: February 2013

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.

Suggested Citation

Vogel, Edgar and Ludwig, Alexander and Börsch-Supan, Axel H., Aging and Pension Reform: Extending the Retirement Age and Human Capital Formation (February 2013). NBER Working Paper No. w18856, Available at SSRN: https://ssrn.com/abstract=2226844

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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