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Capital- and Labor-Saving Technical Change in an Aging Economy

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  • Andreas Irmen

    () (CREA, Université du Luxembourg)

Abstract

Does population aging and the associated increase in the old-age dependency ratio affect economic growth ? The answer is given in a novel analytical framework that allows for population aging to affect endogenous capital- and labor-saving technical change. The short-run analysis reveals that population aging induces more labor- and less capital-saving technical change as it increases the relative scarcity of labor with respect to capital. Due to external contemporaneous knowledge spill-overs across innovating firms induced technical change has a first-order effect on current aggregate income. In the long-run capitalsaving technical progress vanishes, and the economy’s growth rate reflects only labor-saving technical change. However, the mere possibility of capital-saving technical change is shown to imply that the economy’s steady-state growth rate becomes independent of its age structure: neither a higher life-expectancy nor a decline in fertility affects economic growth in the long run.

Suggested Citation

  • Andreas Irmen, 2013. "Capital- and Labor-Saving Technical Change in an Aging Economy," CREA Discussion Paper Series 13-27, Center for Research in Economic Analysis, University of Luxembourg.
  • Handle: RePEc:luc:wpaper:13-27
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    References listed on IDEAS

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    1. Charles I. Jones, 2005. "The Shape of Production Functions and the Direction of Technical Change," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 517-549.
    2. Irmen, Andreas, 2011. "Steady-state growth and the elasticity of substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 35(8), pages 1215-1228, August.
    3. Klump, Rainer & McAdam, Peter & Willman, Alpo, 2004. "Factor substitution and factor augmenting technical progress in the US: a normalized supply-side system approach," Working Paper Series 367, European Central Bank.
    4. Charles I. Jones & Dean Scrimgeour, 2008. "A New Proof of Uzawa's Steady-State Growth Theorem," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 180-182, February.
    5. Duffy, John & Papageorgiou, Chris, 2000. "A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
    6. H. Uzawa, 1961. "Neutral Inventions and the Stability of Growth Equilibrium," Review of Economic Studies, Oxford University Press, vol. 28(2), pages 117-124.
    7. Ekkehart Schlicht, 2006. "A Variant of Uzawa's Theorem," Economics Bulletin, AccessEcon, vol. 5(6), pages 1-5.
    8. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, March.
    9. Funk, Peter, 2002. "Induced Innovation Revisited," Economica, London School of Economics and Political Science, vol. 69(273), pages 155-171, February.
    10. Andreas Irmen & Amer Tabakovic, 2015. "Endogenous Capital- and Labor-Augmenting Technical Change in the Neoclassical Growth Model," CESifo Working Paper Series 5643, CESifo Group Munich.
    11. Miguel-Angel Martín & Agustín Herranz, 2004. "Human capital and economic growth in Spanish regions," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 10(4), pages 257-264, November.
    12. repec:kap:iaecre:v:10:y:2004:i:4:p:257-264 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Gehringer, Agnieszka & Prettner, Klaus, 2014. "Longevity and technological change," Center for European, Governance and Economic Development Research Discussion Papers 213, University of Goettingen, Department of Economics.
    2. Andreas Irmen, 2017. "Technological Progress, the Supply of Hours worked, and the Consumption–Leisure Complementarity Technological Progress, the Supply of Hours worked, and the Consumption–Leisure Complementarity ," CREA Discussion Paper Series 17-23, Center for Research in Economic Analysis, University of Luxembourg.
    3. Maik T. Schneider & Ralph Winkler, 2010. "Growth and Welfare under Endogenous Lifetime," CER-ETH Economics working paper series 10/137, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    4. Andreas Irmen & Anastasia Litina, 2016. "Population Aging and Inventive Activity," CESifo Working Paper Series 5841, CESifo Group Munich.
    5. Li, Defu & Bental, Benjamin & Huang, Jiuli, 2016. "Stationary Growth and the Impossibility of Capital Efficiency Gains," MPRA Paper 71516, University Library of Munich, Germany.
    6. Tabakovic, Amer & Irmen, Andreas, 2014. "Capital- and Labor-Augmenting Technical Change in the Neoclassical Growth Model," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100602, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    Demographic Transition; Capital Accumulation; Direction of Technical Change;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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