Wage and (un-)employment effects of an ageing workforce

Given the empirical fact that workers of different ages are not perfect substitutes in production, this paper explores how change in the age pattern affects wages and (un)employment. We develop a general equilibrium model where wages for young and old workers are set by monopoly unions. Contrary to the common wisdom on this topic, we show that an increase in the relative number of older workers has no effect on young and old unemployment. If, however, unions attach a higher weight to the wishes of the old, the unemployment rate of the old (young) will increase (decrease). In this case, we observe a redistribution of wage income from the young to the old.