Wealth accumulation and inter-generational inequality with inverted population pyramids

Demographic dynamics and the shift of population pyramids towards an inverted pyramid shape in advanced economies are leading to relative scarcity of labour and excess savings. What are the effects of these dynamics on the relative wealth accumulation journeys of different cohorts? Within a fixed-effect cross country panel framework, I find that savings by an increasing share of households aged between 45 and 65, a rise in retired over-65s, and a decrease in working-age and low-wealth agents in their twenties and thirties can explain most of the decline in rates of return across countries in the last few decades, and similarly a large part of the increase in wages. In this context and looking to the future, wealth accumulation out of income and capital returns by cohorts living in advanced economies and retiring in future decades is set to become increasingly difficult, as higher wages are not sufficient to compensate for lower returns over long periods of time. Current young and future generations are therefore set to face progressively lower standards of living at retirement and/or increasingly high saving ratios in working age.