Working Paper: NBER ID: w14063
Authors: Nir Jaimovich; Henry E. Siu
Abstract: We investigate the consequences of demographic change for business cycle analysis. We find that changes in the age composition of the labor force account for a significant fraction of the variation in business cycle volatility observed in the U.S. and other G7 economies. During the postwar period, these countries experienced dramatic demographic change, although details regarding timing and nature differ from place to place. Using panel-data methods, we exploit this variation to show that the age composition of the workforce has a large and statistically significant effect on cyclical volatility. We conclude by relating these findings to the recent decline in U.S. business cycle volatility. Through simple quantitative accounting exercises, we find that demographic change accounts for approximately one-fifth to one-third of this moderation.
Keywords: Demographics; Business Cycle; Volatility
JEL Codes: E0; E3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| age composition of the labor force (J21) | cyclical volatility (E32) |
| larger share of young workers (J21) | higher volatility in market work and output (E32) |
| demographic change (J11) | moderation in business cycle volatility (E32) |