 Sectoral reallocations with an aging populationSimona E. Cociuba and James C. MacGee European Economic Review, 2026, vol. 181, issue C Abstract: Demographic projections show the majority of OECD economies will see declines in their working-age populations in the coming decades. This is potentially problematic, since young workers account for a large share of net labor reallocation between growing and shrinking industries. To examine if sectoral reallocation costs are exacerbated by an aging population, we develop a three-sector perpetual youth search model with sector-specific human capital. Our model features two interconnected frictions: sectoral preference, which implies that only some workers are mobile across sectors, and a wage bargaining distortion, whereby mobile workers’ outside option of searching in the growing sector dampens the fall in shrinking sector wages, leading to rest unemployment. In our parametrized model, as population growth declines from 3 to −1 percent, output losses from a one-time reallocation shock of 3 percentage points increase seven-fold to nearly 10 percent of annual GDP, and there are extended periods of high unemployment and low vacancies. Keywords: Demographics; Sectoral reallocation; Wage bargaining distortion; Worker mobility (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:181:y:2026:i:c:s0014292125002326 DOI: 10.1016/j.euroecorev.2025.105182 Access Statistics for this article European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer More articles in European Economic Review from Elsevier |
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