Low Fertility, Human Capital, and Macroeconomics

Ronald Lee, University of California, Berkeley
Andrew Mason, University of Hawaii at Manoa

In the standard Solow neo-classical growth framework, low fertility leads to capital deepening and, hence, to higher per capita consumption. Samuelson raised the possibility, however, that lower population growth may reduce welfare if workers make intergenerational transfers to the elderly (Samuelson 1975; 1976). This paper revisits Samuelson’s conjecture and addresses two questions. First, can low fertility lead to a decline in per capita consumption when the saving rate is endogenously determined? Second, how are conclusions modified if low fertility leads to greater investment in human capital (Becker 1960; Becker and Tomes 1976; Becker and Barro 1988)? Empirical analysis is based on new estimates of the economic lifecycle (age profiles of consumption and labor income), public and private spending on education and health, intergenerational transfers, and other cross-sectional and time-series data. The data are being compiled by research teams in 23 countries collaborating on the development of National Transfer Accounts.