Aging Population and Technology Adoption

Population aging affects the relative supply of inputs in the economy altering the in-centives to adopt different types of technology. Empirically, I document a hump-shaped relation between the age of the population and the adoption of new-technology proxied by the ICT capital share. To explain the non-monotonic relationship and identify the mech-anisms at play, I build a dynamic general equilibrium model with endogenous technology and R&D-driven technological progress. New-technology is defined as a labor-saving (capital-intensive) technology requiring skills to be used. An increase in the capital-to-labor ratio driven by population aging increases new-technology adoption while the increasing scarcity of young workers that have higher incentives to acquire the comple-mentary skills to new-technology reduces it. The model, calibrated to fit European data, shows that the demographic structure of the population is a major determinant of tech-nology adoption. Population aging explains almost half of the increase in new-technology adoption in the period 1995-2020 and it determines its reduction in the period 2020-2045. A decomposition exercise shows that population aging is a primary source of the increase in the skill premium explaining a larger share of its increase than technological progress.