DP14026 Population aging and structural transformation

Author(s): Javier Cravino, Andrei A. Levchenko, Marco Rojas
Publication Date: September 2019
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Programme Areas: International Macroeconomics and Finance, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14026

We propose and quantify a novel mechanism behind the structural transformation process: older individuals devote a larger share of their expenditures to services, so the relative size of the service sector grows as the population ages. We document that for a large sample of countries, increases in population age are accompanied by the rise in the relative size of the service sector. We use household-level data from the US Consumer Expenditure Survey to show that the fraction of expenditures devoted to services increases with household age. We use a shift-share decomposition and a quantitative model to show that changes in the US population age distribution accounted for about a fifth of the increase in the share of services in consumption expenditures observed between 1982 and 2016. In our quantitative model, population aging plays a much larger role than changes in real income in accounting for the structural change observed in the US during this period.