Aging and Automation in Economies with Search Frictions

This paper investigates the impact of an increase in life expectancy on the level and the distribution of income in the presence of skill heterogeneity and automation capital. It shows analytically that an increase in life expectancy induces the replacement of low-skilled workers by automation capital and high-skilled workers. It also raises the skill premium, but has an ambiguous effect on total income. When we perform a simulation exercise, based on US data, we find that an increase in life expectancy raises the level of income but exacerbates its distribution. For this reason, we also examine redistributive policies that can mitigate some of the negative effects that follow an increase in life expectancy.