Intergenerational earnings mobility and demographic dynamics: Welfare analysis of an aging Japan

Abstract

This paper simulates the effects of intergenerational earnings mobility on individual welfare and future demography in an aging and depopulating Japan. A simulation analysis finds that increased intergenerational mobility across income classes promotes economic growth, and from a long-term perspective, a higher mobility potentially achieves Pareto improvements. In the long run, however, it will hinder economic growth. This is because increased mobility increases the population share of individuals with a higher labor productivity, enhancing economic growth in the initial stage, but because of their lower fertility, an increase in their population ratio negatively effects the total population over time.