The interaction between trade and aging in determining education and skill premium

This paper is primarily concerned with the impacts of population aging upon education and skill premium. To study population aging, we utilize an overlappinggeneration model where survival into the old stage is uncertain and population aging is modelled via a higher survival rate. Featuring the household, education and production sectors, our model is analysed under both autarky and two-country trade environments. Under autarky, we find that population aging encourages educational efforts and decreases skill premium. In contrast, under the two-country trade environment, population aging in one country encourages domestic education while discourages education of the other country. Moreover, in our classical trade framework without skill biased technical change, we find that population aging increases skill premium in all countries. Our study provides a new explanation for the observed skill premium rises over recent decades. JEL Classification: F11, J11, O30, O33.