Gerontocracy in Motion? – European Cross-Country Evidence on the Labor Market Consequences of Population Ageing

Michael Fertig* and Christoph M. Schmidt**

Gerontocracy in Motion? - European Cross-Country Evidence
on the Labor Market Consequences of Population Ageing

Abstract

Taking a European cross-country perspective, this paper addresses the most
important issues in the nexus of population ageing and labor markets. We start
from a descriptive overview of the demographic change currently shaping
European societies. The subsequent section intensively discusses the potential
consequences of these demographic processes for and interdependencies with
the labor market situation in Europe. We place particular emphasis on the is-
sue of non-competitive wage setting. In our empirical application we demon-
strate that moderately large birth cohorts seem to experience lower employ-
ment rates, but also that education investments might be able to mitigate these
consequences, and that the relative economic success of large cohorts might
even be disproportionately positive. Finally, in the concluding section we re-
view possible policy options for coping with the consequences of population
ageing.

JEL-Classification: J11, J21

Keywords: Demographic change, cohort size, unemployment

*Rheinisch-Westfalisches Institut für Wirtschaftsforschung, Hohenzollernstraβe 1/3, D-45128 Es-
sen, and IZA, Bonn. **Rheinisch-Westfalisches Institut für Wirtschaftsforschung, Hohenzollern-
str. 1/3, D-45128 Essen, Ruhr University, Bochum, IZA, Bonn, and CEPR, London. All correspon-
dence to Prof. Dr. Christoph M. Schmidt, Ph.D., RWI, Hohenzollernstr. 1-3, 45128 Essen, Germa-
ny, Fax: +49-201-8149-236, e-mail: [email protected]. - The authors are grateful to Adam
Strzyz and Anette Hermanowski for valuable research assistance, and to Robert Wright and the
participants of the Scotecon-Conference “Scotland’s Demographic Challenge”, University of
Stirling June 2003, for their comments.

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