Working Paper: NBER ID: w8640
Authors: Axel Boerschsupan
Abstract: This paper analyzes effects of population aging on the labor market and determines their broad implications for public policy. It takes Germany as an example, but it equally applies to the other large economies in Continental Europe. The paper argues that, alongside the amply discussed, demographically-determined increase in the contribution and tax burden which is responsible for the ever widening gap between gross and disposable earnings, two other important areas of policy deserve greater attention. First, it is unlikely that the decline in the relative size of the economically active population will be offset by higher capital intensity. Labor productivity will need to increase over and above this mechanism in order to compensate for the impact of population aging on domestic production. Hence, we will need more education and training to speed up human capital formation. Second, the shift in the age structure will also change the structure of demand for goods. This, in turn, will have large effects on the pattern of employment across different sectors of the economy and will require a substantial increase in labor mobility in order to accommodate these structural changes.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Demographic change (J11) | Decline in the relative size of the economically active population (J21) |
| Decline in the relative size of the economically active population (J21) | Necessitate higher productivity growth (O49) |
| Higher productivity growth (O49) | Sustain current consumption levels (E21) |
| Demographic changes (J11) | Alter the demand for goods and services (D12) |
| Altered demand for goods and services (D12) | Significant changes in employment patterns across various sectors (J21) |
| Demographic shifts (J11) | Affect international economic relations (F69) |
| Demographic shifts (J11) | Capital flows from older to younger populations (J11) |
| Demographic trends (J11) | Exacerbate unemployment among lower-skilled workers (F66) |
| Demographic trends (J11) | Create shortages of highly qualified individuals (J23) |