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How aging of the labor force affects equilibrium unemployment

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  • Hetze, Pascal
  • Ochsen, Carsten
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    Abstract

    This paper argues that aging of the labor force affects job creation and job destruction. To analyze this, we extend a standard model of equilibrium unemployment and search in the labor market by the distinction between age specific separation risks and a productivity differential between young and elderly workers. Based on the theo- retical model, we identify four regimes of changes in the Beveridge Curve and job creation which can occur if the age structure varies. We also present an econometric model to find out which country relates to which regime. According to the estimates we can identify all four cases. For example, Spain and the US may experience positive effects on employment when the labor force grows older. In contrast to this, the unemployment rate in Germany and Japan will rise as a consequence of the increase in the share of elderly workers. --

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    Bibliographic Info

    Paper provided by University of Rostock, Institute of Economics in its series Thuenen-Series of Applied Economic Theory with number 57.

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    Date of creation: 2005
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    Handle: RePEc:zbw:roswps:57

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    Related research

    Keywords: Vacancies and Separations; Unemployment; Job Creation; Aging of the Labor Force; Demographic Change;

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    References

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    1. Petrongolo, Barbara & Pissarides, Christopher, 2000. "Looking Into The Black Box: A Survey Of The Matching Function," CEPR Discussion Papers 2409, C.E.P.R. Discussion Papers.
    2. Peter Batey & Moss Madden, 1999. "The employment impact of demographic change: A regional analysis," Papers in Regional Science, Springer, vol. 78(1), pages 69-87.
    3. David E. Bloom & David Canning, 2004. "Global Demographic Change: Dimensions and Economic Significance," NBER Working Papers 10817, National Bureau of Economic Research, Inc.
    4. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, September.
    5. Pissarides, Christopher A. & Wadsworth, Jonathan, 1994. "On-the-job search: Some empirical evidence from Britain," European Economic Review, Elsevier, vol. 38(2), pages 385-401, February.
    6. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    7. Miles, David K, 1997. "Modelling the Impact of Demographic Change Upon the Economy," CEPR Discussion Papers 1762, C.E.P.R. Discussion Papers.
    8. Friedrich Breyer & Klaus Stolte, 2001. "Demographic change, endogenous labor supply and the political feasibility of pension reform," Journal of Population Economics, Springer, vol. 14(3), pages 409-424.
    9. Börsch-Supan, Axel & Düzgün, Ismail & Weiss, Matthias, 2005. "Altern und Produktivität: Zum Stand der Forschung," MEA discussion paper series 05073, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    10. Coles, Melvyn G & Smith, Eric, 1996. "Cross-Section Estimation of the Matching Function: Evidence from England and Wales," Economica, London School of Economics and Political Science, vol. 63(252), pages 589-97, November.
    11. Acemoglu, Daron, 1997. "Technology, unemployment and efficiency," European Economic Review, Elsevier, vol. 41(3-5), pages 525-533, April.
    12. van Ours, Jan C., 1995. "An empirical note on employed and unemployed job search," Economics Letters, Elsevier, vol. 49(4), pages 447-452, October.
    13. Burgess, Simon M., 1994. "Matching models and labour market flows," European Economic Review, Elsevier, vol. 38(3-4), pages 809-816, April.
    14. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
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    Cited by:
    1. Prskawetz, Alexia & Veliov, Vladimir M., 2007. "Age-specific dynamic labor demand and human capital investment," Journal of Economic Dynamics and Control, Elsevier, vol. 31(12), pages 3741-3777, December.

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