Population Aging and the Market for Higher Education

The paper presented in this Mannheim Applied Seminar constructs a general equilibrium life cycle model of the college market with heterogeneous colleges, student college quality and major choice, and subsequent labor market outcomes of workers in different occupations. The cross-sectional distribution of college quality and college specialization is an equilibrium outcome and is shaped by the demographic structure of the economy, by public education spending and college loan policies, as well as by the endogenous relative wages that college graduates with different majors command in the labor market. The authors use the model to evaluate the aggregate and distributional consequences of the “demographic cliff” that will reduce the number of high-school graduates in the next decades, and against the backdrop of technological change (e.g., the emergence of AI) in the labor market. They then discuss the ability of recently proposed public education finance reforms by the recent administrations to shape these consequences.