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Firm and Worker Dynamics in an Aging Labor Market

Author

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  • Niklas Engbom

Abstract

I develop an idea flows theory of firm and worker dynamics in order to assess the consequences of population aging. Older people are less likely to attempt entrepreneurship and switch employers because they have found better jobs. Consequently, aging reduces entry and worker mobility through a composition effect. In equilibrium, the lower entry rate implies fewer new, better job opportunities for workers, while the better matched labor market dissuades job creation and entry. Aging accounts for a large share of substantial declines in firm and worker dynamics since the 1980s, primarily due to equilibrium forces. Cross-state evidence supports these predictions.

Suggested Citation

  • Niklas Engbom, 2019. "Firm and Worker Dynamics in an Aging Labor Market," Working Papers 756, Federal Reserve Bank of Minneapolis, revised 10 Apr 2019.
  • Handle: RePEc:fip:fedmwp:756
    DOI: 10.21034/wp.756
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    File URL: https://www.minneapolisfed.org/research/wp/wp756.pdf
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    References listed on IDEAS

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    1. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage Bargaining with On-the-Job Search: Theory and Evidence," Econometrica, Econometric Society, vol. 74(2), pages 323-364, March.
    2. Daniel Garcia‐Macia & Chang‐Tai Hsieh & Peter J. Klenow, 2019. "How Destructive Is Innovation?," Econometrica, Econometric Society, vol. 87(5), pages 1507-1541, September.
    3. Jean-Baptiste Michau, 2013. "Creative Destruction with On-the-Job Search," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 691-707, October.
    4. Bilal, Adrien & Engbom, Niklas & Mongey, Simon & Violante, Giovanni L., 2019. "Firm and Worker Dynamics in a Frictional Labor Market," CEPR Discussion Papers 14246, C.E.P.R. Discussion Papers.
    5. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-748, August.
    6. Knut Røed & Jens Fredrik Skogstrøm, 2014. "Job Loss and Entrepreneurship," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(5), pages 727-744, October.
    7. Jesse Perla & Christopher Tonetti, 2014. "Equilibrium Imitation and Growth," Journal of Political Economy, University of Chicago Press, vol. 122(1), pages 52-76.
    8. Adrien G. Bilal & Niklas Engbom & Simon Mongey & Giovanni L. Violante, 2019. "Firm and Worker Dynamics in a Frictional Labor Market," NBER Working Papers 26547, National Bureau of Economic Research, Inc.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Firm and Worker Dynamics in an Aging Labor Market
      by Christian Zimmermann in NEP-DGE blog on 2019-05-10 19:30:02

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    Cited by:

    1. Guimarães, Luis & Gil, Pedro, 2019. "Looking ahead at the effects of automation in an economy with matching frictions," MPRA Paper 96238, University Library of Munich, Germany.

    More about this item

    Keywords

    Demographics; Labor turnover; Entrepreneurial choice; Economic growth; Employment;

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • 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

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