Demographic Change and the Labor Market: Do Smaller Entry Cohorts Reduce Unemployment?

Carsten Pohl, Institute for Employment Research (IAB)
Alfred Garloff, Institute for Employment Research (IAB)
Norbert Schanne, Institute for Employment Research (IAB)

In this paper we analyze the consequences of smaller labor market entry cohorts on unemployment in Western Germany. Given the sharp decline in birth rates since the beginning of the 1970s the baby boom generation was followed by a baby bust generation. In addition, Germany will experience significant demographic changes in the decades ahead so that the question whether the shrinkage and the aging of the working population will have any effects on the labor market is of high interest. Since the existing cohort crowding literature provides ambiguous results on the relationship between the size of labor market entry cohorts and unemployment we use shrinking entry cohorts in order to study the effect on unemployment. In order to perform the analysis we use regional data from the Federal Statistical Office of Germany and the IAB employment sample for the years 1978 to 2004.