Essays on demographic changes and lifecycle behavior

Abstract

This three-part thesis investigates demographic changes, lifecycle behavior and two macroeconomic variables, asset returns and wealth level. The first chapter studies how schooling and retirement choices affect the equilibrium asset return on the balanced growth path. Chapters two and three analyze how increasing wealth and mortality decline shape individual schooling and retirement decisions when human capital carries non-pecuniary benefit. Academia and practitioners have extensively studied the relation between population structure and asset returns. In most existing studies, the population structure refers to the relative population of certain age groups. I make two major contributions by analyzing the balanced-growth path of a continuous-time overlapping generations model. First, two important lifecycle choices - schooling and retirement - have non-negligible effects on the equilibrium return. Second, while the literature usually takes population structure as given, the driver of population structure changes can either be fertility variation or mortality transition. I show that mortality reduction after retirement age lowers equilibrium return, or raises asset price, which implies that a higher concentration of retirees (asset sellers) does not necessarily lead to lower asset prices. In the past century, there have been significant increases in longevity and average years of schooling across most countries. Meanwhile, the average retirement age and expected lifetime labor supply have been falling. Standard models of human capital accumulation are incompatible with the evidence. Chapters 2 and 3 try to alleviate the incompatibility by utilizing the non-pecuniary benefits of education and the significant increase in the wealth level. The presence of the non- pecuniary benefit of schooling enables the wealth effect to reduce retirement age but increase schooling, as people substitute pecuniary benefits of education for non-pecuniary benefits.