Job Market Paper:

Demographic structure and the (un)employment volatility of young workers

This paper offers a theoretical explanation of a novel fact: Unemployment volatility within a group of young workers increases with their share in the labor force. Using a search and matching model, with a labor demand structure that differentiates between young and old workers, I show how the dynamics of labor market transition rates depend on the demographic structure of the workforce. In addition to a composition effect, there is a spillover effect among the young: An increase in the share of young workers depresses the price of output typically produced by them. The volatilities of the job-finding and separation rates within this group increase accordingly, jointly raising unemployment volatility.

Other Working Papers:

Demographic change and unemployment volatility, resubmitting

This paper examines the relationship between demographic changes and unemployment volatility using an unbalanced panel of 20 OECD countries from 1960 to 2007. First, I document the differences in the age-specific unemployment volatility. The value for young workers is much higher than those for other age groups. Second, I find that the age composition of the labor force has not only a composition effect on the aggregate unemployment volatility but also a spillover effect on that of young workers. To be precise, the variation in the share of young workers has a quantitatively large and statistically significantly positive impact on their unemployment volatility. The conclusion accounts for the effects from labor market institutions and is robust to changes in the composition of the sample. Cross-sectional dependence, which is also found in the panel, is managed by the common correlated effect (CCE) estimators. Finally, by decomposing the effects of demographic changes into composition and spillover effects, I find that the spillover effect plays the leading role.

Population aging, monetary policy, and consumption inequality over the life cycle

Population aging has differential impacts on the consumption of workers and retirees. On the one hand, it can give workers a higher incentive to save so as to insure against a longer retirement period. On the other hand, it also creates a downward pressure on the real interest rate, thereby partially discouraging workers' incentive to carry assets into retirement. Using a New Keynesian model featuring the life-cycle behavior of Gertler (1999), I predict an increase in consumption inequality between retirees and workers, which is caused by the latter effect when using the projected demographic evolution of the U.S. I also investigate the distributional effects of the zero lower bound during cyclical downturns, which binds more frequently with an older population. I find that its presence can mitigate the asymmetric effects of shocks on workers and retirees in the long run, because there is a lower decline in the real return on assets, which particularly benefits retirees.

Publications:

Wage determinants, industry entry, and comparative advantages, (with Zhengmao Ye), Journal of Finance and Economics (in Chinese), 39(9), 2013