This thesis is a collection of three essays on the effect of demographic changes on the economy.
In Chapter 1, I empirically document a non-monotonic effect of an aging workforce on the adoption of ICT (new technology) and on productivity which I rationalise using a task-based OLG model. Initially, the aging of the population has a positive effect on productivity as it reduces the labour supply and increases the capital stock triggering the adoption of new (labour-saving) technologies. However, as young workers (with a comparative advantage in the use of new technologies) become scarce, further aging depresses the adoption of new technologies and reduces productivity. The model also provides policy recommendations regarding the optimal retirement age.
In Chapter 2, co-authored with Max Brés, we analyse the effect of a change in the age composition of consumers on sector aggregates. To identify the effect coming from the demand side of the economy, we use a shift-share IV approach and instrument the change in the age composition of demand with foreign demographics. We find that only middle-aged consumers are associated with higher prices, lower production, and lower productivity suggesting that the age composition of demand affects the economy through changes in the market structure.
In Chapter 3, co-authored with Max Brés, we propose a model with age-specific search costs and elasticity of substitution to highlight the mechanisms behind the empirical results in Chapter 2. The model shows that an increase in the share of middle-aged consumers (who have high search costs and low elasticity of substitution) leads to an increase in both within-sector and between-sectors competition, increasing prices and reducing production and productivity. To capture general equilibrium effects and substitution across sectors, we nest the calibrated sector-level model within a multi-sector general equilibrium framework. We find that the general equilibrium model substantially dampens the sector-level effects due to lower substitution across sectors. Fitting the model using US demographic data, we find that in the period 1995-2004, as the share of middle-aged increased, the age demand channel contributed to a reduction in US GDP growth, while in the period 2005-2019, as the middle-aged grew old, the age demand channel had a positive effect on US GDP growth.