Anushka Chawla : anushka.chawla[at]univ-amu.fr
Kenza Elass : kenza.elass[at]univ-amu.fr
Carolina Ulloa Suarez : carolina.ulloa-suarez[at]univ-amu.fr
We analyze the effect of demographic changes on labor productivity through the demand channel. We document the relevance of this channel using the change in the age composition of the demand coming from abroad and find that an aging demand has a non-monotonic effect on the economy as, relative to young consumers, only middle-aged consumers are associated with lower productivity. We rationalize our findings using a sequential search model in which middle-aged consumers have higher search costs relative to young consumers (who are more efficient in searching) and old consumers (who have a lower opportunity cost of time). An increase in the share of middle-aged consumers increases firms’ market power and reduces the incentive to invest in technologies with depressing effects on productivity. We estimate the model using our empirical findings and provide evidence that the change in the age composition of demand has been an important driver of the slowing down of the labor productivity growth in aging economies between 1995 and 2007.