Demographics and Unemployment

University of Iceland Institute of Economic Studies Working Paper No. W0109

35 Pages Posted: 1 Oct 2003

See all articles by Tryggvi Thor Herbertsson

Tryggvi Thor Herbertsson

University of Reykjavik

Gylfi Zoega

University of Iceland; University of London - Birkbeck College; Centre for Economic Policy Research (CEPR)

Edmund S. Phelps

Center on Capitalism and Society, Columbia University

Date Written: January 2002

Abstract

This paper introduces the age structure of the population into the analysis of medium term unemployment swings. We incorporate age-related features into the Shapiro-Stiglitz shirking model and find that the observed age pattern of unemployment can be explained in terms of the model. Moreover, we find that changes in the age composition of the population - in particular the ageing of the baby-boom generation - has caused OECD wide unemployment to be 50 basis points lower than what it currently is. The magnitude of his effect varies between countries though but it is never larger than 140 basis points (France and Italy). More importantly, the age effect on the labour participation rate is considerable - the rates would have fallen by almost 5 percent point more than observed in the OECD if the baby-boom generation had not come of age. There is also a statistical relationship between several macroeconomic shocks and demographic factors. In particular, the larger the share of working-age individuals, the higher is the ratio of investment to GDP, and the higher the share of the 25-34 year old cohort, the greater the rise in stock prices in recent years.

Keywords: Unemployment, age-stucture, G7

JEL Classification: J21, J11, J69, E24

Suggested Citation

Herbertsson, Tryggvi Thor and Zoega, Gylfi and Phelps, Edmund S., Demographics and Unemployment (January 2002). University of Iceland Institute of Economic Studies Working Paper No. W0109. Available at SSRN: https://ssrn.com/abstract=444080 or http://dx.doi.org/10.2139/ssrn.444080

Tryggvi Thor Herbertsson (Contact Author)

University of Reykjavik ( email )

Reykjavik
Iceland
+354 8613162 (Phone)

HOME PAGE: http://www.ru.is

Gylfi Zoega

University of Iceland ( email )

IS-101 Reykjavik
Iceland

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Edmund S. Phelps

Center on Capitalism and Society, Columbia University ( email )

420 W. 118th Street
New York, NY 10027
United States
212-854-2060 (Phone)
212-854-8059 (Fax)

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