Research

Population aging is a common trend in many developed countries with important consequences for aggregate economic outcomes. At the same time, many countries have experienced profound changes in wage inequality over recent decades. This paper investigates the extent to which population aging contributes to shifts in the wage structure. Using German linked-employer-employee data between 2005 and 2017, I document that the age wage differential declined by approximately 25%, while wage inequality within age groups decreased by 5–7%. These changes coincide with declining labor market mobility and flattening job ladders for younger and older workers. I construct a search-and-matching model with heterogeneous workers and age-specific transition rates to quantify the role of demographic change. Counterfactual exercises show that slower mobility contributes to the decline in wage inequality within age groups.

Structural transformation and declining business dynamism are two prominent long-run trends in developed economies, yet their relationship remains understudied. This paper investigates the link between the sectoral reallocation of employment toward services and changing firm dynamics in the United States. Using firm-level data from 1978 to 2019, I show that structural transformation is driven primarily by very large firms, with establishment size accounting for 68% of the relative increase in employment in the service sector. Entry and exit rates have declined in the goods and service sectors, with entering firms becoming smaller, particularly in the goods sector. To understand these joint phenomena, I develop a two-sector model with heterogeneous firms facing sector-specific entry and operating cost, as well as productivity distributions. I calibrate the model to the US economy from 1978 to 1982 and 2015 to 2019. Counterfactual exercises show that sector-specific productivities, operating, and entry cost can explain parts of the observed decline in firm dynamics as well as parts of the shift in output and employment towards services.