Document Type

Working Paper

Publication Date

10-1-2001

Working Paper Number

WP #03015, October 2001 revised March 2003; Old working paper #10255

Abstract

In recent years, many countries have experienced a significant shift in demographic patterns towards the elderly. This phenomenon poses numerous challenges for the design of public pension programs and labor market policies. To better understand how public policy should be designed in response to a aging workforce, it is imperative to first make an assessment of how the lifecycle affects aggregate labor market activity, and in particular, unemployment. While much work has been done on exploring how the lifecycle influences individual labor market behavior, its impact on aggregate labor market outcomes is far less studied. This paper is an attempt at addressing this lacuna within the context of a lifecycle model with costly search and matching in the labor market. The lifecycle of workers in conjunction with frictions in the labor market produces an environment in which unemployment arises as a natural possibility and both young and old workers find themselves contemporaneously competing for the same jobs. The lifecycle is shown to have significant implications for aggregate labor market activity; it may even be responsible for an inefficient allocation of workers to jobs. Additionally, public policies designed to increase labor market participation among older workers may not necessarily enhance aggregate welfare.

JEL Classification

J41, J64, E24

File Format

application/pdf

Length

42 pages

Included in

Economics Commons

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