Labor supply of elderly people, fertility, and economic development

Abstract

Increases in life expectancy and the fertility rate have been observed as per-capita income increases in economically developed countries with high per-capita income. We explain these observations using a synthetic economic model with endogenous lifetime, retirement, and human capital accumulation. In contrast to the result obtained by assuming an institutionally fixed and compulsory retirement, a longer life expectancy attributable to rises in per-capita income can induce elderly people to leave the labor market later, thereby enabling them to increase consumption of goods as well as “children” when young. Consequently, higher per-capita income can be associated with higher fertility.