Labor Market Adjustments to Population Decline: A Historical Macroeconomic Perspective, 1875-2019

Advanced economies will face population decline, particularly among those of working age. Yet, evidence of labor market implications is sparse. Creating a historical dataset for sixteen advanced economies from 1875 to 2019, we identify population shocks and trace the economic effects conditionally on the demographic regime. Our results suggest regime-specific differences: Unlike population growth, population decline quickly passes through to the labor market. While total factor productivity is depressed, negative effects for economic growth are offset by increasing participation and capital-labor ratio. The decline in labor supply does not lead to lower unemployment or higher wages as indicators of shortage.