Fertility, human capital, and economic growth over the demographic transition

Lee, Ronald Demos
Mason, Andrew
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Over the demographic transition, declining fertility leads to rising support ratios and consumption during the first divided phase, followed by falling support ratios as population ages. Might human capital investments rise sufficiently as fertility falls to preserve the initial gains? Using a new cross-national data set, we estimate that a constant share of life time labor income is invested in human capital, so that the proportion invested per child is inversely proportional to the number of children. We draw from the literature an estimated elasticity of labor productivity with respect to human capital. Combining these, we simulate the effect of fertility variations over an exogenous demographic transition, including varying child and old age dependency, on consumption. In the baseline simulation, the increased human capital investments due to lower fertility initially reduce consumption as fertility falls but subsequently raise consumption despite population aging and increased transfers to the elderly.
Also to be presented at the World Demographic Association Conference on the Economic Effects of Low Fertility, University of St. Gallen, Switzerland, 11-12 April 2008.
Demographic transition, Fertility, Human - Economic aspects, Human capital, Population aging - Economic aspects
Lee, Ronald and Andrew Mason. 2008. Fertility, human capital, and economic growth over the demographic transition. Paper presented at the Annual Meeting of the Population Association of America, New Orleans, L.A., April 17-19, 2008.
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