Aging and pension reform: Extending the retirement age and human capital formation

Arbeitspapier

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 asset rich households. This paper takes the perspective of the three demographically oldest European nations - France, Germany and Italy - to address three important adjustment channels to dampen these detrimental effects of aging in these countries: investing abroad, endogenous human capital formation and increasing the retirement age. Our quantitative finding is that endogenous human capital formation in combination with an increase in the retirement age has strong implications for economic aggregates and welfare, in particular in the open economy. These adjustments reduce the maximum welfare losses of demographic change for households alive in 2010 by about 2.2 percentage points in terms of a consumption equivalent variation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SAFE Working Paper ; No. 82

Classification and Topics

• Classification: Wirtschaft ; Computable General Equilibrium Models ; General Aggregative Models: Forecasting and Simulation: Models and Applications ; Aggregate Factor Income Distribution ; Demographic Trends, Macroeconomic Effects, and Forecasts ; Human Capital; Skills; Occupational Choice; Labor Productivity
• Subject: population aging ; human capital ; welfare ; pension reform ; retirement age ; open economy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Vogel, Edgar ; Ludwig, Alexander ; Börsch-Supan, Axel
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
• (where): Frankfurt a. M.
• (when): 2014

Further information

• DOI: doi:10.2139/ssrn.2553236
• Handle: http://hdl.handle.net/10419/106506
• Last update: 10.03.2025, 11:44 AM CET