Capital- and Labor-Saving Technical Change in an Aging Economy

Andreas Irmen

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: Does population aging and the associated increase in the old-age dependency ratio affect economic growth ? The answer is given in a novel analytical framework that allows for population aging to affect endogenous capital- and labor-saving technical change. The short-run analysis reveals that population aging induces more labor- and less capital-saving technical change as it increases the relative scarcity of labor with respect to capital. Due to external contemporaneous knowledge spill-overs across innovating firms induced technical change has a first-order effect on current aggregate income. In the long-run capitalsaving technical progress vanishes, and the economy’s growth rate reflects only labor-saving technical change. However, the mere possibility of capital-saving technical change is shown to imply that the economy’s steady-state growth rate becomes independent of its age structure: neither a higher life-expectancy nor a decline in fertility affects economic growth in the long run.

Keywords: Demographic Transition; Capital Accumulation; Direction of Technical Change (search for similar items in EconPapers)
JEL-codes: D91 D92 O33 O41 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-age and nep-dge
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: CAPITAL‐ AND LABOR‐SAVING TECHNICAL CHANGE IN AN AGING ECONOMY (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:13-27

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