The Effect of Aging on the Age-wage Profile
By Toshikatsu Inoue
Despite its importance, many macroeconomic models do not capture the changes in the age-wage profile over time. The flattening of the age-wage profile in Japan and the relative increase in the aging workforce suggests the existence of demand law in relative labor inputs and wages of each age, which is abstracted from the standard macroeconomic model. In this study, we build a model using the aggregate production function that creates a downward slope labor demand curve. We estimate the labor demand curve and evaluate the effect of labor supply change on the wage profile. Our empirical analysis shows that this effect can explain the observed change in age-wage profile in almost all ages to a great extent, and strongly suggests that labor inputs of different ages are imperfect substitutions in a macroeconomic production function.
Source: SSRN
