Make yourselves scarce: The effect of demographic change on the relative wages and employment rates of experienced workers

We argue that rising supply of experience not only reduces experienced workers’ relative
wages but also their relative labor market participation. From a theoretical model we
derive predictions which we quasi-experimentally investigate, using variation across U.S. local labor markets (LLMs) over the last decades and instrumenting experience supply by the LLMs’ age structures a decade earlier. We find that aging substantially reduces
experienced workers’ relative wages and employment rates, and also their labor market
participation rates. Our results imply that the effect of demographic change on labor
markets might be more severe than previously recognized, as it reaches beyond wages.