Population Aging and the Direction of Technical Change

An analytical framework is developed to study the repercussions betweenendogenous capital- and labor-saving technical change and population aging.Following an intuition often attributed to Hicks (1932), I ask whether and howpopulation aging aects the relative scarcity of factors of production, relative factorprices, and the direction of induced technical change. Aging is equivalent toan increase in the old-age dependency ratio of an OLG-economy with two-periodlived individuals. In this framework aging increases the relative scarcity of laborwith respect to capital. Therefore, there will be more labor- and less capital-savingtechnical change. Unless there are contemporaneous knowledge spillovers acrossinnovating rms technical change induced by a small increase in the old-age dependencyratio has no rst-order eect on current GDP. The presence of capital-savingtechnical change is shown to imply that the economy's steady-state growth rate isindependent of its age structure.[...]