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Estimating the Effect of the Age Distribution on Cyclical Output Volatility Across the United States

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  • Steven Lugauer

    (University of Notre Dame)

Abstract

I exploit the variation in demographic change across the United States to estimate the relationship between the age distribution in the population and the magnitude of cyclical output volatility. According to panel regression estimates, the relative supply of young workers, or youth share, has a statistically significant effect on the volatility of state-by-state GDP. Moreover, changes to the age distribution can account for up to 58% of the recent reduction in business cycle fluctuations, indicating a critical link between the youth share and output volatility. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Steven Lugauer, 2012. "Estimating the Effect of the Age Distribution on Cyclical Output Volatility Across the United States," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 896-902, November.
    • Handle: RePEc:tpr:restat:v:94:y:2012:i:4:p:896-902
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    References listed on IDEAS

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    1. Nir Jaimovich & Henry E. Siu, 2009. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," American Economic Review, American Economic Association, vol. 99(3), pages 804-826, June.
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    5. Nir Jaimovich & Seth Pruitt & Henry E. Siu, 2009. "The demand for youth: implications for the hours volatility puzzle," International Finance Discussion Papers 964, Board of Governors of the Federal Reserve System (U.S.).
    6. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230, National Bureau of Economic Research, Inc.
    7. Lugauer, Steven, 2012. "Demographic Change And The Great Moderation In An Overlapping Generations Model With Matching Frictions," Macroeconomic Dynamics, Cambridge University Press, vol. 16(5), pages 706-731, November.
    8. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
    9. Paul Gomme & Richard Rogerson & Peter Rupert & Randall Wright, 2005. "The Business Cycle and the Life Cycle," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 415-592, National Bureau of Economic Research, Inc.
    10. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
    11. Robert Shimer, 2001. "The Impact of Young Workers on the Aggregate Labor Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 969-1007.
    12. James Feyrer, 2007. "Demographics and Productivity," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 100-109, February.
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    Cited by:

    1. Cao, Huoqing & Chen, Shiyi & Xi, Xican, 2023. "Aging, migration, and structural transformation in China," Economic Modelling, Elsevier, vol. 126(C).
    2. Martin Iseringhausen & Hauke Vierke, 2019. "What Drives Output Volatility? The Role of Demographics and Government Size Revisited," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(4), pages 849-867, August.
    3. Jedwab,Remi Camille & Pereira,Daniel & Roberts,Mark, 2019. "Cities of Workers, Children, or Seniors? Age Structure and Economic Growth in a Global Cross-Section of Cities," Policy Research Working Paper Series 9040, The World Bank.
    4. Gerdie Everaert & Hauke Vierke, 2016. "Demographics and Business Cycle Volatility: A Spurious Relationship?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(7), pages 1467-1477, November.
    5. Kasey Buckles & Daniel Hungerman & Steven Lugauer, 2021. "Is Fertility a Leading Economic Indicator?," The Economic Journal, Royal Economic Society, vol. 131(634), pages 541-565.
    6. Mennuni, Alessandro, 2013. "Labor Force Composition and Aggregate Fluctuations," Discussion Paper Series In Economics And Econometrics 1302, Economics Division, School of Social Sciences, University of Southampton.
    7. Chadwick C. Curtis & Steven Lugauer & Nelson C. Mark, 2015. "Demographic Patterns and Household Saving in China," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 58-94, April.
    8. Heer, Burkhard & Rohrbacher, Stefan & Scharrer, Christian, 2017. "Aging, The Great Moderation, And Business-Cycle Volatility In A Life-Cycle Model," Macroeconomic Dynamics, Cambridge University Press, vol. 21(2), pages 362-383, March.
    9. Mennuni, Alessandro, 2019. "The aggregate implications of changes in the labour force composition," European Economic Review, Elsevier, vol. 116(C), pages 83-106.
    10. Steven Lugauer, 2012. "The Supply of Skills in the Labor Force and Aggregate Output Volatility," Working Papers 005, University of Notre Dame, Department of Economics, revised Jun 2012.
    11. Lugauer, Steven & Redmond, Michael, 2012. "The age distribution and business cycle volatility: International evidence," Economics Letters, Elsevier, vol. 117(3), pages 694-696.
    12. Benjamin Wild Pugsley & Ay’egul ahin, 2019. "Grown-up Business Cycles," The Review of Financial Studies, Society for Financial Studies, vol. 32(3), pages 1102-1147.
    13. Steven Lugauer & Richard Jensen & Clayton Sadler, 2014. "An Estimate Of The Age Distribution'S Effect On Carbon Dioxide Emissions," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 914-929, April.
    14. Lugauer, Steven, 2012. "Demographic Change And The Great Moderation In An Overlapping Generations Model With Matching Frictions," Macroeconomic Dynamics, Cambridge University Press, vol. 16(5), pages 706-731, November.
    15. Tselmuun Tserenkhuu & Stephen Kosempel, 2024. "Life expectancy and business cycles in a small open economy," ISER Discussion Paper 1263, Institute of Social and Economic Research, Osaka University.
    16. Zhang, Haifeng & Zhang, Hongliang & Zhang, Junsen, 2015. "Demographic age structure and economic development: Evidence from Chinese provinces," Journal of Comparative Economics, Elsevier, vol. 43(1), pages 170-185.

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    More about this item

    Keywords

    age distribution; business cycles; demographics; United States;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Estimating the effect of the age distribution on cyclical output volatility across the United States (REStat 2012) in ReplicationWiki

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