Economics seminar - Macro: Niklas Engbom, Princeton University

I assess the impact of an aging labor force on business dynamism, labor market fluidity and economic growth. The analysis embeds endogenous growth through creative destruction in an equilibrium job ladder model, highlighting feedback between the extent of mismatch in the labor market and incentives to innovate. I calibrate the model to aggregate reallocation rates and show that the theory replicates life cycle firm and worker dynamics in the data. The model implies that labor force aging over the last 30 years in the US explains 40–50 percent of the decline in job and worker reallocation and has reduced annual economic growth by 0.3 percentage points. Using cross-state variation and instrumenting for the incidence of aging using lagged age shares, I find additional empirical support for the prediction of large effects of aging on dynamism and growth.

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