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The Young, the Old, and the Restless: Demographics and Business Cycle Volatility

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  • 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14063.

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Date of creation: Jun 2008
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Publication status: published as Nir Jaimovich & Henry E. Siu, 2009. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," American Economic Review, American Economic Association, vol. 99(3), pages 804-26, June.
Handle: RePEc:nbr:nberwo:14063

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