Hostname: page-component-848d4c4894-x24gv Total loading time: 0 Render date: 2024-05-02T04:37:05.691Z Has data issue: false hasContentIssue false
  • English
  • Français

Longevity shocks with age-dependent productivity growth

Published online by Cambridge University Press:  09 January 2017

BEN J. HEIJDRA  and
LAURIE S. M. REIJNDERS
BEN J. HEIJDRA
Affiliation:
University of Groningen, Netspar, CESifo, Munich, Germany (e-mail: b.j.heijdra@rug.nl)
LAURIE S. M. REIJNDERS
Affiliation:
University of Groningen, Netspar (e-mail: l.s.m.reijnders@rug.nl)
Get access Rights & Permissions [Opens in a new window]

Abstract

The aim of this paper is to study the long-run effects of a longevity increase on individual decisions about education and retirement, taking macroeconomic repercussions through endogenous factor prices and the pension system into account. We build a model of a closed economy inhabited by overlapping generations of finitely-lived individuals whose labour productivity depends on their age through the build-up of labour market experience and the depreciation of human capital. We make two contributions to the literature on the macroeconomics of population ageing. First, we show that it is important to recognize that a longer life need not imply a more productive life and that this matters for the affordability of an unfunded pension system. Second, we find that factor prices could move in a direction opposite to the one accepted as conventional wisdom following an increase in longevity, if this increase is accompanied by a sufficient decline in the rate of human capital depreciation.

Keywords

E20D91J11J24J26Ageingretirementhuman capitalpensions
Type
Article
Information
Journal of Pension Economics & Finance , Volume 17 , Issue 2 , April 2018 , pp. 200 - 230
Copyright
Copyright © Cambridge University Press 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We are much indebted to Fabian Kindermann for computational advice on efficient Fortran programming. We thank our editor Alain Jousten, an anonymous referee, Hippolyte d'Albis, Rob Alessie, David de la Croix, Fabian Kindermann and various conference, workshop and seminar participants for their useful comments. We thank Netspar for research funding.

References

Bell, F. C. and Miller, M. L. (2005) Life tables for the United States Social Security Area 1900–2100. Technical Report, SSA Pub. 11-11536. Minneapolis: Social Security Administration, Office of the Chief Actuary.Google Scholar
Boucekkine, R., de la Croix, D., and Licandro, O. (2002) Vintage human capital, demographic trends, and endogenous growth. Journal of Economic Theory, 104: 340–375.Google Scholar
Buyse, T., Heylen, F., and van de Kerckhove, R. (forthcoming) Pension reform in an OLG model with heterogeneous abilities. Journal of Pension Economics and Finance. doi: 10.1017/S1474747215000281.Google Scholar
Cannon, E. and Tonks, I. (2008) Annuity Markets. Oxford: Oxford University Press.Google Scholar
Cervellati, M. and Sunde, U. (2013) Life expectancy, schooling, and lifetime labor supply: theory and evidence revisited. Econometrica, 81(5): 2055–2086.Google Scholar
d'Albis, H., Lau, S.-H. P., and Sánchez-Romero, M. (2012) Mortality transition and differential incentives for early retirement. Journal of Economic Theory, 147: 261–283.Google Scholar
Heathcote, J., Perri, F., and Violante, G. L. (2010) Unequal we stand: an empirical analysis of economic inequality in the United States, 1967–2006. Review of Economic Dynamics, 13: 15–51.Google Scholar
Heckman, J. J., Lochner, L., and Taber, C. (1998) Explaining rising wage inequality: explorations with a dynamic general equilibrium model of labor earnings with heterogeneous agents. Review of Economic Dynamics, 1: 1–58.Google Scholar
Heijdra, B. J. and Reijnders, L. S. M. (2016) Human capital accumulation and the macroeconomy in an ageing society. De Economist, 164: 297–334.Google Scholar
Heijdra, B. J. and Romp, W. E. (2009) Retirement, pensions, and ageing. Journal of Public Economics, 93: 586–604.Google Scholar
Heijdra, B. J., Mierau, J. O., and Reijnders, L. S. M. (2014) A tragedy of annuitization? Longevity insurance in general equilibrium. Macroeconomic Dynamics, 18: 1607–1634.Google Scholar
Jeong, H., Kim, Y., and Manovskii, I. (2014) The price of experience. Working Paper 20457, NBER, Cambridge, MA.Google Scholar
Kalemli-Ozcan, S. and Weil, D. N. (2010) Mortality change, the uncertainty effect, and retirement. Journal of Economic Growth, 15: 65–91.Google Scholar
Kalemli-Ozcan, S., Ryder, H. E., and Weil, D. N. (2000) Mortality decline, human capital investment, and economic growth. Journal of Development Economics, 62: 1–23.Google Scholar
Katz, L. F. and Murphy, K. M. (1992) Changes in relative wages, 1963–1987: supply and demand factors. The Quarterly Journal of Economics, 107(1): 35–78.Google Scholar
King, M., Ruggles, S., Alexander, J. T., Flood, S., Genadek, K., Schroeder, M. B., Trampe, B., and Vick, R. (2010) Integrated Public Use Microdata Series, Current Population Survey: Version 3.0. Machine-readable database, Minneapolis: University of Minnesota.Google Scholar
King, R. G., Plosser, C. I., and Rebelo, S. (2002) Production, growth and business cycles: technical appendix. Computational Economics, 20: 87–116.Google Scholar
Lee, R. D. (2016) Macroeconomics, aging and growth. Working Paper 22310, NBER, Cambridge, MA.Google Scholar
Leung, S. F. (1994) Uncertain lifetime, the theory of the consumer, and the life cycle hypothesis. Econometrica, 62: 1233–1239.Google Scholar
Ludwig, A., Schelkle, T., and Vogel, E. (2012) Demographic change, human capital and welfare. Review of Economic Dynamics, 15: 94–107.Google Scholar
Manton, K. G., Gu, X., and Lamb, V. L. (2006) Long-term trends in life expectancy and active life expectancy in the United States. Population and Development Review, 32: 81–105.Google Scholar
Prettner, K. and Canning, D. (2014) Increasing life expectancy and optimal retirement in general equilibrium. Economic Theory, 56: 191–217.Google Scholar
Rupert, P. and Zanella, G. (2015) Revisiting wage, earnings, and hours profiles. Journal of Monetary Economics, 72: 114–130.CrossRefGoogle Scholar
Wallenius, J. (2011) Human capital accumulation and the intertemporal elasticity of substitution of labor: how large is the bias? Review of Economic Dynamics, 14: 577–591.Google Scholar