Relative Cohort Size and Unemployment in the United States

Carsten Ochsen, University of Applied Labour Studies, University of Rostock, and Max Planck Institute of Demographic Research

Since the early 1970s it was argued in different studies that shifts from relative smaller to larger age cohorts of the labor force lower the unemployment rate (cohort crowding hypothesis). However, Robert Shimer (2001) provoked a debate with his controversial result that the overall unemployment rate tends to be lower when many young people supply labor. In contrast to other studies, he uses regional (state level) data. I apply different regional data sets for the USA (including Robert Shimers original data) to analyze how aging affects unemployment in a framework that considers spatial interactions. At the state level, I can neither confirm the findings of Robert Shimer nor the cohort crowding hypothesis. Using county level data, however, I find local effects that are compatible with the cohort crowding hypothesis but also with specific assumptions about the heterogeneity of older and younger workers that are to the advantage of older workers.