Abstract:
Since the early 1970s, it was argued that shifts from relatively smaller to larger youth cohorts in the labor force raise the unemployment rate. In contrast, using US state-level data, two studies come to a contrary conclusion. I provide a theoretical framework for local labor markets that considers age cohort differences in labor market characteristics. Using a spatial panel data model and US county-level data (2000–2014), the estimates provide strong evidence that aging of the working-age population reduces overall unemployment by almost 1 percentage point. Long-run effects that consider local feedbacks are even larger.