Declining Fertility, Human Capital Investment, and Economic Sustainability

In the context of low and declining fertility, we are interested in the potential of the saved human capital investment in the educational system following the smaller cohorts that are being born. [...] We do this by keeping the total education investments at the same 1 The average difference between the TFR and the tempo-adjusted TFR (Bongaarts and Feeney 1998) since the mid-1980s has been 0.16, and the crude tempo-adjusted TFR based on the development in 2021- 2022 was 1.45 in 2022 (authors' own calculations based on the Human Fertility Database 2023). [...] The proportion starts at 66% in the cohorts born in the first decade of the century and eventually reaches 80% in the youngest cohorts born in the 2040s. [...] After simulating the employment careers in the population module and wages in the earnings module, we calculate the pension amounts based on the current pension rules, and aggregate these to population-level indicators such as the pension expenditure, the wage sum, and the GDP for each simulation year. [...] Hence, the gain in wages may be offset by added costs in pensions, and the impact of the investment in human capital on the financing of pensions is smaller than the impact on GDP, as the growth in wages leads to higher pension levels and pension expenditure.