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Longevity shocks with age-dependent productivity growth

  • BEN J. HEIJDRA (a1) and LAURIE S. M. REIJNDERS (a2)

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.

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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.

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References

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Keywords

Longevity shocks with age-dependent productivity growth

  • BEN J. HEIJDRA (a1) and LAURIE S. M. REIJNDERS (a2)

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