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Economic Development with Endogenous Retirement

Author

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  • Kiminori Matsuyama

Abstract

This paper endogenizes the elderly's labor force participation in an overlapping generations economy under the assumption that retirement is a luxury. In a developed economy, the agents earn a high wage income when young and retire when old. This reduces the labor supply (through a low participation rate of the elderly), and stimulates capital accumulation (through saving for retirement). The resulting high capital-labor ration leads to a higher wage income for the next generation. In a poor economy, the agents continue to work when old and saves little, which implies a low capital-labor ration and a low wage income for the next generation. Due to such a positive feedback mechanism, the endogeneity of retirement magnifies the persistence of growth dynamics, thereby slowing down a convergence to the steady state, and evene generating multiple steady states for empirically plausible parameter values.

Suggested Citation

  • Kiminori Matsuyama, 1998. "Economic Development with Endogenous Retirement," Discussion Papers 1237, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:1237
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    More about this item

    Keywords

    Economic Development and Labor force participation rate of the elderly; Labor Supply Effects of Retirement; Saving Effects of Retirement; Persistence in Capital Accumulation; Magnification Effect; Multiple Steady States;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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