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Firm and Worker Dynamics in an Aging Labor Market


  • Niklas Engbom


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.
  • Handle: RePEc:fip:fedmwp:756
    DOI: 10.21034/wp.756

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    References listed on IDEAS

    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.
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    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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    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. Francesco D'Amuri & Marta De Philippis & Elisa Guglielminetti & Salvatore Lo Bello, 2021. "Natural unemployment and activity rates: flow-based determinants and implications for price dynamics," Questioni di Economia e Finanza (Occasional Papers) 599, Bank of Italy, Economic Research and International Relations Area.
    2. Gerald Carlino & Thorsten Drautzburg, 2020. "The role of startups for local labor markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 35(6), pages 751-775, September.
    3. 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.
    4. Tomoaki Kotera, 2020. "Sustainability of Social Security in the Aging Economy from the Perspective of Improving Health," IMES Discussion Paper Series 20-E-12, Institute for Monetary and Economic Studies, Bank of Japan.

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    More about this item


    Demographics; Employment; Economic growth; Labor turnover; Entrepreneurial choice;
    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
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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