Workforce Aging and Structural Shift

Description

This project will investigate the connection between workforce aging and the structuralshift from the manufacturing sector to the service sector. We present the macro-levelstylized facts of the impact of regional workforce age structure on local manufacturingemployment and output shares, as well as manufacturing wage premium. We argueabout the causality by adopting two sets of instrumental variables for the regionalworkforce age structure, lagged regional birth rates and lagged regional abortionrestrictions. We also provide the micro-level evidences we have accumulated so far onthe differential impact of regional workforce age composition on local manufacturingand non-manufacturing firms, using the U.S. Census micro data. Motivated by theseempirical results and the related literature, we propose a structural model to incorporatetwo potential channels through which workforce age composition shifts themanufacturing share in the economy. The first channel is the labor market fluidityassociated with the younger workforce, which benefits the manufacturing sector andservice sector to different degrees. The second channel is that workforce aging causesskill mismatch of workers to the technology embedded in the R&D and capitalinvestment, which affects the technology- and capital-intensive manufacturingindustries in particular. Then we outline the estimation procedure of the structuralmodel with the Method of Simulated Moments. Finally, we propose to evaluate variouspolicy devices given the irreversible trend of population aging, by conducting counterfactualpolicy experiments in the estimated structural model.