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The effect of aging on the age–wage profile in Japan

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  • Inoue, Toshikatsu

Abstract

This paper argues that aging of the workforce is an important factor causing the flattening of the age–wage profile of the Japanese economy that has been observed over the past two decades. Assuming imperfect substitution between older and younger workers, we derive the labor demand function from the firm’s optimization problem. We estimate the elasticity of substitution between different aged workers, and quantify the effect of aging on the age–wage profile. We find that aging of the workforce can explain more than 80% of the change in the age–wage profile from 2000 to 2019.

Suggested Citation

  • Inoue, Toshikatsu, 2022. "The effect of aging on the age–wage profile in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:jjieco:v:66:y:2022:i:c:s0889158322000399
    DOI: 10.1016/j.jjie.2022.101230
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    More about this item

    Keywords

    Age–wage profile; Aging; Imperfect substitution;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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