Demographic change and unemployment: what do macroeconometric models predict?

J.-F. Ouvrard and Roland Rathelot
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J.-F. Ouvrard: DGTPE

Documents de Travail de l'Insee - INSEE Working Papers from Institut National de la Statistique et des Etudes Economiques

Abstract: Declining natality and mortality are reshaping demographic patterns in most industrialized countries. We investigate the case of France where, after a few decades of sustained growth, active population is likely to stop growing and could eventually start decreasing. This will coincide with a boom for the retired population. The purpose of this paper is to examine the consequences of both phenomena for the labour market. We tackle the issue using two approaches: WS-PS models and Phillips curve models. Effects may be short or long-run; they may stem directly from changes in labour supply or from changes in contributions required to finance pensions. In this study, we bring them altogether using the macroeconometric model Mésange. We find that favorable effects can be expected in the short run. However, they are likely to be of a relatively small importance and transitory. In the medium and long run, the WS-PS framework suggests that increases in taxes induced by ageing could lead to more unemployment. This long run effect vanishes under the Phillips specification. On the whole, the final effect upon unemployment depends on agents' bargaining preferences during wage negotiations: the further from labor cost they negotiate (thus the closer to net income), the higher the risk that demographic change ultimately leads to more unemployment.

Keywords: ageing; labor market; macroeconomic models (search for similar items in EconPapers)
JEL-codes: E17 E24 J21 (search for similar items in EconPapers)
Date: 2006
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