Tuesday, August 28, 2012

Demography and Inequality


 As discussed in this week's Economist:

As a country’s birthrate declines, people of working age make up a larger share of the population, which can fuel economic improvement. But a new study by Harvard School of Public Health researchers finds that lower birthrates raise income inequality within countries in the short-term; the birth rate of the wealthy begins to decline first and, according to the researchers, they are the first to reap the benefits of demographic change.

Microeconomic Foundations of the Demographic Dividend

David E. Bloom, David Canning, G√ľnther Fink, Jocelyn E. Finlay

Abstract

The potential economic returns to the demographic transition are high. As countries move from a steady state with high mortality and high fertility to an equilibrium with low mortality and fewer children, lower dependency ratios, higher investment in human and physical capital as well as increased female labor force participation contribute to economic growth. In this paper, we analyze the demographic transition at the household level, investigating the distributional patterns of the economic and welfare benefits associated with the demographic transition across socioeconomic groups within countries and over time. We find large differences in the effects of the demographic transition across socioeconomic status (SES) groups in the early stages of the demographic transition, but also substantial behavioral change across all groups during phases of rapid fertility decline, so that the long-run effects of the demographic transition on inequality remain ambiguous.



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