Abstract

A  tractable model with heterogeneous households is proposed to analyze the two-way interactions between demographic and macroeconomic variables. Total population and labor-market participation are both endogenous and affected by economic as well as demographic factors. In addition, demographic factors have direct effects on aggregate productivity through selection effects on the labor market. We show that aging and negative fertility shocks have opposite predictions in terms of their effects on GDP per capita and aggregate productivity. A quantitative exercise based on Japanese data suggests that an aging shock alone has relatively little effect and falls short in replicating the data while considering negative fertility shocks fits the data much better.

Keywords: Heterogeneous workers, Aging, Productivity, Labor markets

Co-author : Aurélien Eyquem

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