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Demography, capital flows and unemployment

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  • Luca MARCHIORI

    (Central Bank of Luxembourg and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Olivier PIERRARD

    (Central Bank of Luxembourg and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Henri R. SNEESSENS

    (CREA, Université du Luxembourg and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and IZA, Bonn)

Abstract

This paper contributes to the already vast literature on demography-induced international capital flows by examining the role of labor market imperfections and institutions. We setup a two-country overlapping generations model with search unemployment, which we calibrate on EU15 and US data. Labor market imperfections are found to significantly increase the volume of capital flows, because of stronger employment adjustments in comparison with a competitive economy. We next exploit themodel to investigate how demographic asymmetriesmay have contributed to unemployment and welfare changes in the recent past (1950-2010). We show that a policy reform in one country also has an impact on labor markets in other countries when capital is mobile.

Suggested Citation

  • Luca MARCHIORI & Olivier PIERRARD & Henri R. SNEESSENS, 2011. "Demography, capital flows and unemployment," LIDAM Discussion Papers IRES 2011040, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2011040
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    Cited by:

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    2. Anna Batyra & David de la Croix & Olivier Pierrard & Henri Sneessens, 2016. "Structural changes in the labor market and the rise of early retirement in Europe," DEM Discussion Paper Series 16-13, Department of Economics at the University of Luxembourg.
    3. Luca Marchiori & Olivier Pierrard, 2012. "LOLA 2.0: Luxembourg OverLapping generation model for policy Analysis," BCL working papers 76, Central Bank of Luxembourg.
    4. Domonkos Tomáš & Ostrihoň Filip & Šikulová Ivana & Širaňová Mária, 2017. "Analysing the Relevance of the MIP Scoreboard's Indicators," National Institute Economic Review, National Institute of Economic and Social Research, vol. 239(1), pages 32-52, February.
    5. Daniel Baksa & Zsuzsa Munkacsi, 2016. "A Detailed Description of OGRE, the OLG Model," Bank of Lithuania Working Paper Series 31, Bank of Lithuania.

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    More about this item

    Keywords

    demographics; capital flows; overlapping generations; general equilibrium; unemployment;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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