Age specific dynamic human capital investment . The role of supply and demand of labor . ∗

We introduce a normative 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 the 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 education rate. Our results show that the relation between the elasticity of substitution of labor across ages plays a crucial role for the way the demographic changes affect (both in short and in long run) the optimal educational policy. We also show that under imperfect substitutability across age and qualification groups any change in the labor supply is anticipated in advance. ∗This research was partly financed by the Austrian Science Foundation (FWF) under grant No P18161N13, and by the Austrian National Bank (ÖNB) under grant No 11621. †Vienna Institute of Demography, Prinz Eugenstr. 8-10, 1040 Vienna, Austria ([email protected]) ‡Institute of Mathematics and Informatics, Bulgarian Academy of Sciences, 1113 Sofia, Bulgaria ([email protected]). §Institute for Econometrics, Operations Research and Systems Theory, Vienna University of Technology, Argentinierstrasse 8, A-1040 Vienna, Austria ([email protected]), and Institute of Mathematics and Informatics, Bulgarian Academy of Sciences, 1113 Sofia, Bulgaria.