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Firm and Worker Dynamics in an Aging Labor Market

Working Paper 756 | Published April 10, 2019

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Niklas Engbom Visiting Scholar, Institute
Firm and Worker Dynamics in an Aging Labor Market


I develop an idea flows theory of firm and worker dynamics in order to assess the consequences of population aging. Older people are less likely to attempt entrepreneurship and switch employers because they have found better jobs. Consequently, aging reduces entry and worker mobility through a composition effect. In equilibrium, the lower entry rate implies fewer new, better job opportunities for workers, while the better matched labor market dissuades job creation and entry. Aging accounts for a large share of substantial declines in firm and worker dynamics since the 1980s, primarily due to equilibrium forces. Cross-state evidence supports these predictions.