Population Aging and Human Capital Investment by Youth

This paper examines the link between population aging and the human capital investments of youth. The study proceeds in three steps. First, we estimate an updated version of the Card and Lemieux (2001a) model for Canada using data from the 1981, 1986, 1991, 1996 and 2001 Censuses. The results are used to forecast the impact of population aging on the returns to education of young workers. Second, we review existing empirical studies of the determinants of human capital investments of youth. Theoretical models have long argued that the return to education is one of the important factors in the decision of youth to acquire more education. We show in a new empirical model of enrollment supply and demand that higher education policies and demographic factors actually play a more important role in these decisions. The final step of the paper is to combine the estimates of the updated Card and Lemieux model with existing estimates of the elasticity of human capital investments with respect to cohort size, returns to education, and policy variables that have been obtained. This shows the expected effect of aging on human capital investments of youth under various scenarios.