March 4, 2013

CAAR – National Bureau of Economic Research Working Paper – March 4, 2013

Filed under: Working Papers — Tags: , , — admin @ 4:23 pm

Aging and Pension Reform: Extending the Retirement Age and Human Capital Formation,” by Edgar Vogel, Alexander Ludwig, and Axel Boersch-Supan (w18856, March 2013, .pdf format, 42p.).


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.

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