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Mortality decline, productivity increase, and positive feedback between schooling and retirement choices

Published online by Cambridge University Press:  03 March 2021

Zhipeng Cai
Affiliation:
Equity Research, Institutional Securities, Morgan Stanley Asia Limited, Hong Kong
Sau-Him Paul Lau*
Affiliation:
Faculty of Business and Economics, University of Hong Kong, Hong Kong
C. Y. Kelvin Yuen
Affiliation:
Department of Economics, Washington University in St. Louis, One Brookings Drive, St. Louis, MO63130, USA
*
*Corresponding author. E-mail: laushp@hku.hk
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Abstract

The twentieth century has seen a phenomenal decline in mortality and an increase in productivity level. These two important events likely affect people's choices of schooling years and retirement age. We first show that in a standard life-cycle model, positive feedback exists between optimal schooling years and retirement age choices. We then evaluate the impact of a mortality or productivity shock on an endogenous variable (schooling years or retirement age) by decomposing it into the direct and indirect effects, where the indirect effect arises from feedback from the other endogenous variable. Finally, we extend the model by including the utility benefit of schooling and show that a negative correlation of schooling years and retirement age is possible. Apart from clarifying the apparently similar concepts of positive co-movement and positive feedback, our results have implications relevant to the economic demography literature.

Type
Research Paper
Copyright
Copyright © Université catholique de Louvain 2021

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