CAPITAL‐ AND LABOR‐SAVING TECHNICAL CHANGE IN AN AGING ECONOMY |
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| Authors: | Andreas Irmen |
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| Institution: | CREA, University of Luxembourg, and CESifo, Munich, GermanyThis article is a revised version of my CREA Discussion Paper (Irmen, 2013a). Financial support from the University of Luxembourg under the program “Agecon C—Population Aging: An Exploration of Its Effect on Economic Performance and Culture” is gratefully acknowledged. I would like to thank two anonymous referees and an associate editor for helpful comments. I thank Déborah Schwartz and Amer Tabakovic for competent research assistance. This article also benefited from useful suggestions provided by Volker B?hm, Raouf Boucekkine, Oded Galor, Hendrik Hakenes, Burkhard Heer, Johanna Kuehnel, Anastasia Litina, Isabel Schnabel, Robert Stelter, Gautam Tripati, Edgar Vogel, Benteng Zou, and seminar audiences at several academic institutions. |
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| Abstract: | Does population aging and the associated increase in the old‐age dependency ratio affect economic growth? The answer is given in a novel analytical framework that allows for population aging to affect endogenous capital‐ and labor‐saving technical change. In a steady state capital‐saving technical progress vanishes, and the economy's growth rate of per‐capita variables reflects only labor‐saving technical change. The mere possibility of capital‐saving technical change is shown to imply that the economy's steady‐state growth rate becomes independent of its age structure: Neither a higher life expectancy nor a decline in fertility affects economic growth in the long run. |
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