Longevity and investment in human capital: Lessons from today's developed countries

Moshe Hazan 27 September 2008

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Conventional wisdom suggests that an increase in life expectancy raises the time period over which investments in schooling can be amortised, thus raising schooling. Figure 1 shows the positive correlation between life expectancy at age 5 and average years of schooling for American men born between 1840 and 1970.

Figure 1. Life expectancy and educational attainment

Recently, this view has been also expressed by the World Health Organisation's Commission on Macroeconomics and Health (2001), suggesting that while improving the health and longevity of the poor is an end in itself, it is also a means to achieving economic development. In its 2001 report, the commission states:

“The gains in growth of per capita income as a result of improved health are impressive, but tell only a part of the story. Even if per capita economic growth were unaffected by health, there would still be important gains in economic well-being from increased longevity. [. . . ] Longer-lived households will tend to invest a higher fraction of their incomes in education and financial saving, because their longer time horizon allows them more years to reap the benefits of such investments” (p. 25).

The experience of today's developed economies

Is the correlation showed in Figure 1 more than just a correlation? Did the increase in life expectancy play a major role in the rise in schooling? Many scholars have argued that the gains in life expectancy were the causes for the rise in schooling that took place during the 19th and 20th centuries in today's developed economies (see, for example, Galor and Weil (1999), Soares (2005) among others. In a recent work (Hazan 2006), I argue that the conventional wisdom expressed above implies that time for utilising human capital in the labour market was scarce and that as this constraint was relaxed, it caused a rise in schooling. In other words, the incentive to invest in human capital would increase only if individuals are expected to increase the utilisation of their human capital in the labour market in response to an increase in life expectancy. Figure 2 shows average years of schooling (as in Figure 1) along with the utilisation of human capital in the labour market, measured by the expected total working hours over the lifetime. As can be clearly seen from the figure, it turns out that despite the gains in life expectancy, lifetime labour supply declined dramatically across cohorts.1

This finding suggests that the correlation presented in Figure 1 is merely a correlation, and that gains in longevity had no effect on the rise in schooling during the 19th and 20th centuries.

Figure 2. Educational attainment and lifetime labour supply, US males 1840 - 1970

Lessons for the developing world

The experience of developed countries suggests that the view expressed by the World Health Organization's Commission on Macroeconomics and Health (2001) may be too optimistic. During the development process of today's developed world, economic growth and life expectancy were positively correlated, but the gains in longevity were probably only a by-product of the growth process, not their cause. While the experience of the developing countries may differ from that of the developed ones, my findings downplay the optimistic view expressed by the WHO.

References

Galor, O. and D.N. Weil (1999): “From Malthusian Stagnation to Modern Growth,” American Economic Review, 89(2), 150–154.

Hazan, M. (2006): “Longevity and Lifetime Labor Input: Data and Implications,” CEPR Discussion Paper 5963.

Soares, R. R. (2005): “Mortality Reductions, Educational Attainment, and Fertility Choice,” American Economic Review, 95(3), 580–601.

World Health Organization (2001): “Macroeconomics and Health: Investing in Health for Economic Development,” Report of the Commission on Macroeconomics and Health, Geneva.

Footnotes

1 In Hazan (2006) I show evidence, suggesting that the decline in lifetime labour supply is a robust feature of the process of development and not a peculiar phenomenon of the U.S.

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Topics:  Development Health economics

Tags:  education, economic growth, life expectancy

Associate Professor of Economics, Tel-Aviv University; Associate Editor, Macroeconomic Dynamics; Research Fellow, CEPR

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