Workforce Aging and Potential Output Growth

Mathilde Esposito ()
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Mathilde Esposito: Aix Marseille Univ, CNRS, AMSE, Marseille, France, https://www.amse-aixmarseille.fr/en/members/esposito

No 2425, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: In the literature on secular stagnation, demographic aging is widely blamed for lowering the IS curve of aggregate demand and therefore the natural interest rate. However, very little is said about the impact of workforce aging on long-term aggregate supply, or so-called potential GDP. To fill this gap, this study delves into the effects of workforce aging on two key components of the remarkably sluggish potential GDP growth of developed countries: hours worked and labour productivity. First, using a novel macro-accounting decomposition of EU-KLEMS data, we find that old-labour input has the highest contribution to growth, through both increased hours worked and shifts in labour composition in the EU, US and Japan. Second, we use panel stochastic frontier models highlighting that, however, old workers have an adverse effect on labour productivity growth frontier—though increasing technical efficiency, i.e., reducing the distance to this frontier.

Keywords: Demographic Aging; Potential Growth; Labour Input; Stochastic Frontier Analysis; Labour Productivity and EU-KLEMS (search for similar items in EconPapers)
JEL-codes: J11 J21 J24 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2024-10
New Economics Papers: this item is included in nep-age, nep-eec and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:2425

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