Longevity, Education, and Income: How large is the triangle?

Abstract

While health affects economic development and wellbeing through a variety of pathways, one commonly suggested channel is a “horizon” mechanism in which increased longevity induces additional education. A recent literature devotes much attention to how much education responds to increasing longevity, while this study asks instead what impact this specific channel has on wellbeing (welfare). I note that death is like a tax on human-capital investments, which suggests using a standard tool of introductory economics: triangles. I estimate the (triangular) gain from reoptimization when education adjusts to lower adult mortality. Even for implausibly large responses of education to survival differences, almost all of today’s low-human-development countries, if switched instantaneously to Japan’s survival curve, would place a value on this channel of less than 3% of income. (This contrasts with a 40% ‘rectangle’ that they would gain even if education were held fixed.) Calibrating the model instead with well identified studies, I find that the horizon triangle for the typical low-income country is less than a percent of lifetime income.