Can an Ageing Workforce Explain Low Inflation?

7 Pages Posted: 17 Apr 2020

See all articles by Benoît Mojon

Benoît Mojon

Bank for International Settlements (BIS)

Xavier Ragot

Sciences Po

Multiple version iconThere are 2 versions of this paper

Date Written: March 25, 2020


We investigate the effects of aging on inflation through the labour market. More specifically, we question whether the weakness of wage inflation over the last decade reflects, at least partially, the increase of labour supply by baby boomers.

The post 2013 recovery of advanced economies has not yet translated into “normal” levels of inflation. Core inflation remains near 1% in the euro area, it has increased from zero to 1% in Japan, while in the United States it is approaching 2% after a sustained recovery. Most other advanced economies also see little inflation. Core CPI inflation, the GDP deflator inflation and wage inflation adjusted for productivity have all remained closer to 1% than to 2%, their pre-crisis nominal anchor. In the case of the euro area, we observe “lowflation” in spite of the creation of over 11 million jobs and over 20 quarters in a row of growth at or above the euro area 1.2 to 1.3 % yoy growth potential.

Unemployment has declined steadily from its peak by several percentage points in the United States, Japan, Germany, Canada, the United Kingdom and Spain. Yet inflation is hardly picking up in these countries. It is very tempting to conclude that the traditional Phillips curve may be broken for good. The weakening of the effects of domestic activity on domestic inflation could result from globalisation or automation. Both weaken the bargaining power of workers. These forces have received a lot of attention.

We instead analyse whether the aging of baby boomers, another well known major transformation of advanced economies, has an impact on inflation. In particular, what has received surprisingly little attention is the tremendous increase in the participation of these baby boomers to the workforce. For instance, 6 of the 7 million jobs created in the euro area between 2013 and 2017 were filled by those aged above 50. In the United States, the share of workers in the workforce aged above 55 has almost doubled from 12% in 1995 to 23% in 2016. In Japan, even the participation of workers aged 65 has increased by nearly 4 million since 2007.

Full Publication: Inflation Dynamics in Asia and the Pacific

Suggested Citation

Mojon, Benoît and Ragot, Xavier, Can an Ageing Workforce Explain Low Inflation? (March 25, 2020). BIS Paper No. 111g, Available at SSRN:

Benoît Mojon (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

Xavier Ragot

Sciences Po

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Paris Cedex 07, 75337

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