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Demographic Changes and the Labor Income Share

Abstract : In this article, we study the impact of demographic changes on the inequality between capital and labor. More precisely, we analyze the impact of exogenous changes in both the rate of natural increase and the net migration rate on the labor income as a share of total income. We estimate a structural vector autoregression (VAR) model on a panel of 18 OECD countries with annual data for 1985-2015. We obtain that the response of the labor income share to an exogenous change in the rate of natural increase is signi_cantly negative a few years after the shock whereas its response to an exogenous change in the net migration rate is significantly positive. This suggests that inequality between capital and labor is reduced by international migration while fostered by the natural increase. We rationalize these _ndings in an original representative agent model where the rate of natural increase and the net migration rate are both modeled. The theoretical model reproduces the empirical _ndings and highlight the crucial roles of both the elasticity of substitution between capital and labor and the participation rate of migrants to the labor market. The model is then used to evaluate the dynamics consequences of permanent demographic changes and, most notably, reveals that in the long run, the labor income share is likely to fall with both the natural increase and the net migration.
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https://halshs.archives-ouvertes.fr/halshs-02278765
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Submitted on : Wednesday, September 4, 2019 - 3:50:16 PM
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  • HAL Id : halshs-02278765, version 1

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Hippolyte d'Albis, Ekrame Boubtane, Dramane Coulibaly. Demographic Changes and the Labor Income Share. 2019. ⟨halshs-02278765v1⟩

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