Life Expectancy, Human Capital, Social Security and Growth

Revised: 2006-11.-- Published as an article in: Journal of Public Economics 90(12), December, 2006, pp. 2323-2349.We analyze the effects of changes in the mortality rate upon life expectancy, education, retirement age, human capital and growth in the presence of social security. We build a vintage growth, overlapping generations model in which individuals choose the time length of education and retirement age, and where unfunded social security pensions depend on workers'past contributions. Social security has a positive effect on education, but pension benefits favor reductions in retirement age. The net effect is that starting from a benchmark case, higher life expectancies give rise to lower growth rates in the presence of social security as the share of active population is reduced. In addition, higher social security contribution rates reduce the growth rate.We wish to thank Fundación BBVA, through Project 1/BBVA 00044.321-15467/2002, Ministry of Science and Technology, through Project SEC2003-04826/ECO, and Universidad del País Vasco through Grupo de Investigación Consolidado 9/UPV 00035.321-13511/2001 for their financial support