Decomposing human capital : education and health investments in the time of population aging

Abstract

Why is the retirement age rigid while longevity improves? What are the plausible explanations for the recent upsurge in health expenditure while education expenditure has been stalemated? Complementarity between education and health capital, which encouraged education and health investments, enabled rapid economic growth and greater life expectancy in the developed economies. However, it was lost at some point in the last century, and the subsequent rise of trade-off between education and health capital has brought about low economic growth and high old-age dependency, namely the problems of population aging. By endogenizing both education and health capital accumulations, this dissertation develops the three-period overlapping generations models in order to investigate the issues such as rigidity of retirement age, financially unsustainable social security systems, and collapse of traditional family. The main findings of this dissertation are as follows: First, when highly innovative environments accelerate depreciation of productivity at old-age, people chose early retirement even if they are expected to live longer. Second, Pay-As-You-Go (PAYG) social security distorts both education and health investment decisions. The double moral hazards induce lower education and higher health investments than their optimal levels. Third, economic growth and longevity depend on the degrees of parental and filial altruism, respectively. If people are parentally and filially altruistic at varied degrees, policy changes affect their welfare differently. On the whole, the models in this dissertation succeed in replicating the trade-off between education and health capital and reveal that, in the advanced societies, investments in health tend to increase at the cost of those in education.