Innovation in an Aging Economy
Abstract
This paper provides evidence that rapid workforce aging has contributed to slow productivity growth in the US over the last two decades, through its impact on innovation. I document that workforce aging in local labor markets leads to a reduction in R&D employment and fewer inventions using an instrumental variable strategy. Reductions in R&D employment are driven by within-age group changes, rather than a composition effect driven by age-specific R&D employment rates. This finding suggests that workforce aging impacts innovation through a demand channel, i.e., younger workers have a higher demand for inventions, rather than a supply channel operating, e.g., through the comparative advantage of young workers in innovation. Corroborating a strong demand channel of demographics, I also find that the workforce aging of international trading partners leads to a reduction in local innovation.
