On the Distributional Implications of Demographic Change

This paper provides a quantitative assessment of the impact of future demographic change on the distributions of earnings and skills in the German economy. The model accommodates household heterogeneity along both, the intra- and the inter-generational dimension. The results suggest a decline in the skill premium of 30 percentage points until the year 2050 meanwhile, the college educated share of the population increases by about 4 percentage points. Welfare effects from changing wages, interests, and pensions are severe and amount to up to 6% of consumption in every period of the remaining lifetime. While welfare effects differ considerably across generations they are rather homogeneous across skill groups unless the educational choice of households is restricted.