Workforce aging and labor productivity: the role of supply and demand for labor in the G7 countries

The aim of this paper is to study the sensitivity of projected labor productivity (measured by output per worker) in the G7 with respect to projected labor force participation rates, the age-productivity pro-files of workers and the degree of substitutability of workers at different ages. Simulations suggest that in a pure labor economy, the assump-tion of imperfect substitution of workers at different ages implies a dividend from workforce aging during the next decades. Workforce aging implies that the actual age distribution of the workforce can be expected to shift closer to the optimal age distribution generating a dividend in terms of labor productivity. The dividend is likely to be non-trivial in magnitude, although the size of the effect depends very much on the values of elasticities of substitution about which little is known. Simulations further suggest that variations in age-productivity profiles have only a small impact on projected labor productivity while increases in labor force participation rats may significantly help to al-leviate the projected demographic pressure on labor productivity