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Can an ageing workforce explain low inflation?

Author

Listed:
  • Benoit Mojon
  • Xavier Ragot

Abstract

Why is wage inflation so weak in spite of the recent sharp reduction in unemployment? We show that this may be due to an ongoing change in the composition of the labor supply. Indeed, the participation rate of workers aged between 55 and 64 has increased steadily over the last decade, from a third to above a half on average across OECD countries. This is most likely the consequence of ageing and the reform of pensions. We show that the participation rate of workers aged 55 to 64 contributes to explain why wage inflation has remained weak over the last five years. Our second result is that Phillips curves are alive and well. When exploiting the cross-country variance of the data, wage inflation remains highly responsive to domestic unemployment rates, including after the Great Recession.

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  • Benoit Mojon & Xavier Ragot, 2019. "Can an ageing workforce explain low inflation?," BIS Working Papers 776, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:776
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    Cited by:

    1. Hideaki Aoyama & Corrado Di Guilmi & Yoshi Fujiwara & Hiroshi Yoshikawa, 2021. "Dual labor market and the "Phillips curve puzzle"," CAMA Working Papers 2021-49, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Fumitaka Nakamura & Nao Sudo & Yu Sugisaki, 2021. "Monetary Policy Shocks and the Employment of Young, Middle-Aged, and Old Workers," IMES Discussion Paper Series 21-E-06, Institute for Monetary and Economic Studies, Bank of Japan.
    3. Sitikantha Pattanaik & Silu Muduli & Soumyajit Ray, 2020. "Inflation expectations of households: do they influence wage-price dynamics in India?," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 13(3), pages 244-263, September.
    4. Laszlo Goerke, 2021. "Habit formation and wage determination," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 61-76, January.
    5. Goerke, Laszlo, 2020. "An Efficiency-Wage Model with Habit Concerns about Wages," IZA Discussion Papers 13454, Institute of Labor Economics (IZA).
    6. Benoit Mojon & Xavier Ragot, 2020. "Can an ageing workforce explain low inflation?," BIS Papers chapters, in: Bank for International Settlements (ed.), Inflation dynamics in Asia and the Pacific, volume 111, pages 73-79, Bank for International Settlements.
    7. Hideaki Aoyama & Corrado Guilmi & Yoshi Fujiwara & Hiroshi Yoshikawa, 2022. "Dual labor market and the “Phillips curve puzzle”: the Japanese experience," Journal of Evolutionary Economics, Springer, vol. 32(5), pages 1419-1435, November.
    8. Sirio Aramonte, 2022. "Inflation risk and the labor market: beneath the surface of a flat Phillips curve," BIS Working Papers 1054, Bank for International Settlements.
    9. Rose Cunningham & Vikram Rai & Kristina Hess, 2019. "Exploring Wage Phillips Curves in Advanced Economies," Discussion Papers 2019-8, Bank of Canada.
    10. Bodnár, Katalin & Nerlich, Carolin, 2022. "The macroeconomic and fiscal impact of population ageing," Occasional Paper Series 296, European Central Bank.

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    More about this item

    Keywords

    low inflation; ageing economy; Phillips curve;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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