What Economic Benefits Could Bring Better Health and Increased Human Capital of Younger Generations? – Simulations Using Olg Model

Pawel Strzelecki, Warsaw School of Economics

The aim of the paper is to answer following questions: (1) what are reliable scenarios for life expectancy in a good health?, (2) to what extend the increasing life expectancy in good health and better educational attainment can change labour supply patterns by age?, (3) What can be the long-term consequences of changes in labour supply patterns resulting from better health and educational attainment?

The epidemiologic transition should affect ones’ ability to work and maintain individual productivity (Lazear, 1979; Caselli et al., 2002; Skirebekk, 2003). However, the question remains open: what can be the scope of influence on productivity and labour force participation rates of the lower risk of disability at later ages. Even more complex question is to what extent it would translate into changes in fiscal stance and welfare of the society? In this paper the assumptions of the scenarios base on microdata observations (SHARE database) and literature regarding subjectively reported health and a daily life limitations (Katz, 1983) that can influence labour force participation. Then a small microsimulation model is built to translate the micro level findings into macro level parameters of the labour supply and changes in average productivity of older workers. These parameters are finally used in the simulations using overlapping generations model (OLG) that allow to formulate conclusions about the changes of the fiscal stance and welfare of the society (Auerbach and Kotlikoff, 1986). The application of the OLG model allows to extend the analysis of the consequences of ageing beyond purely demographic analysis which is necessary to understand the persons decisions on the labour market and the functioning of the whole economy in times of population ageing.

Presented in Session 96: Technological Changes in the Labor Market and Institutions