Demography, Capital Flows and Unemployment

48 Pages Posted: 13 Nov 2011

See all articles by Luca Marchiori

Luca Marchiori

Catholic University of Louvain (UCL); Universite du Luxembourg

Olivier Pierrard

Banque Centrale du Luxembourg; IRES, UCL

Henri R. Sneessens

Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES); IZA Institute of Labor Economics

Abstract

This paper contributes to the already vast literature on demography-induced international capital flows by examining the role of labor market imperfections and institutions. We setup a two-country overlapping generations model with search unemployment, which we calibrate on EU15 and US data. Labor market imperfections are found to significantly increase the volume of capital flows, because of stronger employment adjustments in comparison with a competitive economy. We next exploit the model to investigate how demographic asymmetries may have contributed to unemployment and welfare changes in the recent past (1950-2010). We show that a policy reform in one country also has an impact on labor markets in other countries when capital is mobile.

Keywords: demographics, capital flows, overlapping generations, general equilibrium, unemployment

JEL Classification: J11, F21, D91, C68

Suggested Citation

Marchiori, Luca and pierrard, olivier and Sneessens, Henri, Demography, Capital Flows and Unemployment. IZA Discussion Paper No. 6094. Available at SSRN: https://ssrn.com/abstract=1958750

Luca Marchiori (Contact Author)

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Universite du Luxembourg

L-1511 Luxembourg
Luxembourg

Olivier Pierrard

Banque Centrale du Luxembourg ( email )

2, boulevard Royal
Luxembourg, L-2983
Luxembourg

IRES, UCL ( email )

3, Place Montesquieu
1348 Louvain-la-Neuve
Belgium

Henri Sneessens

Catholic University of Louvain (UCL) - Institut de Recherches Economiques et Sociales (IRES) ( email )

3, Place Montesquieu
1348 Louvain-la-Neuve
Belgium
+ (32) 10 47 39 62 (Phone)
+ (32) 10 47 39 45 (Fax)

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

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