Macroeconomic Dynamics

Table of Contents - April 2012 - Volume 16, Issue 02  

Articles

OPTIMAL EDUCATION IN AN AGE-STRUCTURED MODEL UNDER CHANGING LABOR DEMAND AND SUPPLY

Alexia Prskawetza1, Tsvetomir Tsacheva2 c1 and Vladimir M. Veliova3

a1 Vienna University of Technology and Vienna Institute of Demography, Austrian Academy of Sciences

a2 Institute of Mathematics and Informatics, Bulgarian Academy of Sciences

a3 Vienna University of Technology

Abstract

We introduce a model of the optimal education policy at the macro level, allowing for heterogeneity of the workforce with respect to its age and qualification skills. Within this framework we study the optimal education rate in the context of changes in labor demand (as represented by the elasticity of substitution across ages and qualification) and labor supply (as represented by a change in the population growth rates). Applying an age-structured optimal-control model, we derive features of the optimal age-specific education rate. Our results show that the relation between the elasticities of substitution of labor across ages plays a crucial role in the way the demographic changes affect (both in the short and in the long run) the optimal educational policy. We also show that under imperfect substitutability across age and qualification groups, the optimal educational policy is adjusted in advance to any change in the labor supply.

Keywords:

  • Human Capital;
  • Age Composition of Labor;
  • Age-Structured Model;
  • Optimal Control

Correspondence:

c1 Address correspondence to: Tsvetomir Tsachev, Institute of Mathematics and Informatics, Bulgarian Academy of Sciences, Acad. G. Bonchev str., block 8, 1113 Sofia, Bulgaria; e-mail: tsachev@math.bas.bg.

Footnotes

This research was partly financed by the Austrian Science Foundation (FWF) under Grant P18161-N13 and by the Austrian National Bank (ÖNB) under Grant No. 11621.