The Effect of Demographic Change on the Swiss Labor Market: The Role of Participation Rates

The ongoing demographic change is expected to negatively affect the effective labor supply of various developed countries. In order to counteract these developments, many suggested policy measures target the participation rate of women and old workers. In this paper, I develop a multi-sectoral CGE-OLG model where workers of different ages and skills are assumed to be imperfect substitutes and calibrate it to the Swiss economy. I use this model to evaluate the effects of the demographic change on the Swiss labor market and the potential of reforms targeting different participation rates. I find that a yearly decrease of old workers' preference towards leisure by 2% between 2022 and 2030 yields macroeconomic results that are comparable to an increase in the statutory retirement age by 2 years. While the increase of the retirement age succeeds in increasing net income by more than both participation rate increases, it also leads to an increase in wage levels and thereby labor shortages. This result highlights the importance of reducing scarcity on the labor markets for macroeconomic performance and shows the potential of reforms targeting labor market participation.