DP14026 Population aging and structural transformation

Author(s): Javier Cravino, Andrei A. Levchenko, Marco Rojas
Publication Date: September 2019
Date Revised: February 2020
Keyword(s): aging, deindustrialization, structural transformation
JEL(s): E2, O1, O4
Programme Areas: International Macroeconomics and Finance, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14026

Abstract 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. In a large sample of countries, we document that increases in population age are accompanied by the rise in the relative size of the service sector. In household-level data from the U.S. Consumer Expenditure Survey, 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 U.S. population age distribution accounted for about a fifth of the observed increase in the share of services in consumption expenditures between 1982 and 2016. The contribution of population aging to the rise in the service share is about the same size as the contribution of real income growth, and about half as large as that of changes in relative prices.