Population Aging and the Direction of Technical Change

45 Pages Posted: 10 Jan 2010

See all articles by Andreas Irmen

Andreas Irmen

University of Luxembourg - Ceter for Research in Economic Analysis (CREA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research), Munich

Date Written: December 2009

Abstract

An analytical framework is developed to study the repercussions between endogenous capital- and labor-saving technical change and population aging. Following an intuition often attributed to Hicks (1932), I ask whether and how population aging affects the relative scarcity of factors of production, relative factor prices, and the direction of induced technical change. Aging is equivalent to an increase in the old-age dependency ratio of an OLG-economy with two-period lived individuals. In this framework aging increases the relative scarcity of labor with respect to capital. Therefore, there will be more labor- and less capital-saving technical change. Unless there are contemporaneous knowledge spillovers across innovating firms technical change induced by a small increase in the old-age dependency ratio has no first-order effect on current GDP. The presence of capital-saving technical change is shown to imply that the economy's steady-state growth rate is independent of its age structure.

Keywords: demographic transition, capital accumulation, direction of technical change

JEL Classification: D91, D92, O33, O41

Suggested Citation

Irmen, Andreas, Population Aging and the Direction of Technical Change (December 2009). CESifo Working Paper Series No. 2888. Available at SSRN: https://ssrn.com/abstract=1532690

Andreas Irmen (Contact Author)

University of Luxembourg - Ceter for Research in Economic Analysis (CREA) ( email )

162a, avenue de la Faïencerie
Luxembourg, L – 1511
Luxembourg

HOME PAGE: http://wwwen.uni.lu/recherche/fdef/crea/people/andreas_irmen

CESifo (Center for Economic Studies and Ifo Institute for Economic Research), Munich

Poschinger Str. 5
Munich, DE-81679
Germany

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