The Impact of the Age Distribution on Unemployment: Evidence from US States
Economists have long understood that shifts in the age distribution can affect the aggregate unemployment rate. In particular, changes in the share of young people in the population should raise the unemployment rate, because young people tend to have higher unemployment rates than older people. For at least the last five decades, analysts have typically used a “shift-share” method to infer the age distribution’s influence on the unemployment rate. This method involves holding age-specific unemployment rates constant at a base level while labor force shares or population shares change over time (or vice versa). Some authors have pointed out that a potential problem with the shift-share method is its assumption that changes in the age distribution do not affect age-specific unemployment rates—that one age group's population share has no indirect effects on another group’s unemployment rate. This paper uses state-level data to revisit the age distribution’s influence on unemployment in the United States. It examines demographic effects across the entire age distribution instead of focusing on just the youth share of the population, as most previous studies do. It also uses nearly two decades of additional data on state-level age-group shares and unemployment that were not available for earlier research.