Demographics and Unemployment

Abstract

This paper introduces the age structure of the population into the analysis of mediumterm unemployment swings. We incorporate age-related features into the ShapiroStiglitz shirking model and find that the observed age pattern of unemployment can be explained in terms of the model. Moreover, we find that changes in the age composition of the population – in particular the ageing of the baby-boom generation – has caused OECD wide unemployment to be 50 basis points lower than what it currently is. The magnitude of his effect varies between countries though but it is never larger than 140 basis points (France and Italy). There is also a statistical relationship between several macroeconomic shocks and demographic changes. In particular, the larger the share of working-age individuals, the higher is the ratio of investment to GDP, and the higher the share of the 25-34 cohort, the greater the rise in stock prices in recent years.