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Aging, Unemployment, and Welfare in a Life-Cycle Model with Costly Labor Market Search

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Bhattacharya, Joydeep
Reed, Robert

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Abstract

In recent years, many countries have experienced a significant shift in demographic patterns towards the elderly. This phenomenon poses numerous challenges for the design of public pension programs and labor market policies. To better understand how public policy should be designed in response to a aging workforce, it is imperative to first make an assessment of how the lifecycle affects aggregate labor market activity, and in particular, unemployment. While much work has been done on exploring how the lifecycle influences individual labor market behavior, its impact on aggregate labor market outcomes is far less studied. This paper is an attempt at addressing this lacuna within the context of a lifecycle model with costly search and matching in the labor market. The lifecycle of workers in conjunction with frictions in the labor market produces an environment in which unemployment arises as a natural possibility and both young and old workers find themselves contemporaneously competing for the same jobs. The lifecycle is shown to have significant implications for aggregate labor market activity; it may even be responsible for an inefficient allocation of workers to jobs. Additionally, public policies designed to increase labor market participation among older workers may not necessarily enhance aggregate welfare.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10255.

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Date of creation: 27 Mar 2003
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Handle: RePEc:isu:genres:10255

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J0 - Labor and Demographic Economics - - General

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Daniel Rodriguez & Madeline Zavodny, 2000. "Are displaced workers now finished at age forty?," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 33-48. [Downloadable!]
  2. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 49(2), pages 217-27, April. [Downloadable!] (restricted)
  3. Robert Shimer, 2001. "The Impact Of Young Workers On The Aggregate Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 969-1007, August. [Downloadable!] (restricted)
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  4. Bhattacharya, Joydeep & Reed, Rob, 2003. "Age-Specific Employment Policies," Staff General Research Papers 10256, Iowa State University, Department of Economics. [Downloadable!]
  5. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1994. "Jobs and Chocolate: Samuelsonian Surpluses in Dynamic Models of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(1), pages 173-92, January. [Downloadable!] (restricted)
  6. Joydeep Bhattacharya & Casey B. Mulligan & Robert R. Reed III, 2001. "Labor Market Search and Optimal Retirement Policy," NBER Working Papers 8591, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  1. Bhattacharya, Joydeep & Reed, Rob, 2003. "Age-Specific Employment Policies," Staff General Research Papers 10256, Iowa State University, Department of Economics. [Downloadable!]
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