Population Aging and Structural Transformation
NBER Working Paper No. 26327
We propose and quantify a novel mechanism behind the structural transformation process: older individuals devote a larger share of their expenditures to services, so the relative size of the service sector grows as the population ages. In a large sample of countries, we document that increases in population age are accompanied by the rise in the relative size of the service sector. In household-level data from the U.S. Consumer Expenditure Survey, the fraction of expenditures devoted to services increases with household age. We use a shift-share decomposition and a quantitative model to show that changes in the U.S. population age distribution accounted for about a fifth of the observed increase in the share of services in consumption expenditures between 1982 and 2016. The contribution of population aging to the rise in the service share is about the same size as the contribution of real income growth, and about half as large as that of changes in relative prices.
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Document Object Identifier (DOI): 10.3386/w26327