Gerontocracy in Motion?
23
degree) of human capital accumulation of younger workers in Germany. Fur-
thermore, the structure of the cohorts with respect to the average educational
attainment of the parent generation impinges upon these indicators as well.
However, there is also considerable heterogeneity in these effects for cohorts
before and after the sharp drop in birth rates at the beginning of the 1970s.
Therefore, this paper documents the intricate relationship between demo-
graphic change and human capital accumulation.
3.4 Organization of Work and Structure of Product Demand
During the ageing process across the life cycle individual physical ability might
decline and human capital investments made in the past will gradually depre-
ciate. Numerous empirical studies in the received literature document that
there exists a robust and inversely u-shaped relationship between an individ-
ual’s age and earnings and, thus, presumably productivity (see also our empiri-
cal application below). Thus, population ageing might also have a negative im-
pact on aggregate productivity, since the productivity of older, more prevalent
cohorts is vaning. This is exactly the idea of presuming stable life-cycle profiles
of labor income.
We have seen above that life-cycle profiles might be twisted by relative scarci-
ties when the age composition of the labor force changes. We have also argued
that young generations can emphasize these changes by high investments into
human capital. If the productivity decline of older workers cannot be offset by
higher human capital accumulation of the young, then the ageing process
might have a negative impact on an economy’s output level, its growth rates
and employment levels. Borsch-Supan (2003) argues that this effect will be
quantitatively less important for per-capita incomes than the massive rise of
the old-age dependency ratio, though.
However, there might be alterations of these profiles which reflect more than
the usual relative scarcity calculus. The negative impact of a large cohort size
might be (partially) offset by the way higher labor market experience is re-
warded as technological progress unfolds. Specifically, there might be fac-
tor-induced technical change (Acemoglu 2002) in the sense that the productiv-
ity of experienced workers, then the more abundant factor, rises dispropor-
tionately. Consequently, the net effect of ageing on individual productivity is
a priori not clear. An interesting, but up to now in the scientific literature
mostly ignored issue is the extent to which firms are able to cope with this phe-
nomenon by adequate measures of organizational change, inducing dispro-
portionate increases of the productivity of more prevalent generations.
Finally, there might be an additional effect of population ageing on labor mar-
kets via changes in the level and structure of product demand due to a higher
share of elderly in the population (Borsch-Supan 2003). If during the process