Geoscience Reference
In-Depth Information
economic models. Over 40 years later, has much changed? The answer is mixed;
transportation models have been significantly expanded to embrace choice models;
migration has moved beyond the “net migrant” [see Rogers (
1990
)] and
microsimulation (Birkin and Clarke
2011
; van Leeuwen
2010
) offers a way to
combine individual decision-making within a macro context. However, when one
looks at the structure of most regional macroeconomic models, once again “people”
have been consigned (aggregated) to one vector of consumption and one row of
receivers of wages and salaries; the heterogeneity of household skill levels (and thus
their ability to command differential factor payments) and Engels' well known laws
about the relationship between consumption preferences and income are all but
ignored. What is troubling is that household consumption accounts for 70 % of
expenditures on the expenditure side of GDP in countries like the US yet the
heterogeneity of tastes and preferences, the effects of differences in household size,
income and age are all collapsed. These variations could be generated by changes in:
• The age composition of households since consumption patterns change with age
• Income distribution, since there are important differences in the way income is
allocated depending on the level of income
• In- and out-migration, not only in terms of volume but also in terms of composition
• In retirement patterns and especially the propensity for retirees to remain in a
region
• In social security costs and the way these are allocated across households over time
Figure
11.1
shows the way in which a more elaborated set of interactions
between the demographic and economic parts of the economy can be handled. In
essence, demographic changes—whether from the perspective of the individual or
household—have the capacity to exert significant influences on what and where
commodities and services are produced and consumed. In turn, these market signals
affect significant sources of income from wages and salaries and the profitability of
enterprises affects returns to capital and savings that ultimately affect disposable
income for retiree households.
In this paper, a series of issues surrounding household behavior will be explored in
terms of their economic impacts. The analysis will draw on both quantity adjusted
and price adjusted general equilibriummodels. The final set of analyses will describe
some alternative approaches to role of education investment in economies with
ageing populations drawing on work completed in the US and Korea using general
equilibrium models with slightly different assumptions about household behavior.
11.2 Unraveling Household Heterogeneity
1
With many national and regional economies experiencing significant demographic
changes—ageing of the population, differential (in terms of income and occupational
characteristics) out- and in-migration and deepened income disparities—there is a
1
This section draws on Yoon and Hewings (
2006
).
