Bayesian estimation of labor demand by age: theoretical consistency and an application to an input–output model

Extended input–output models require careful estimation of disaggregated consumption by households and comparable sources of labor income by sector. The latter components most often have to be estimated. The primary focus of this paper is to produce labor demand disaggregated by workers’ age. The results are evaluated through considerations of its consistency with a static labor demand model restricted with theoretical requirements. A Bayesian approach is used for more straightforward imposition of regularity conditions. The Bayesian model confirms elastic labor demand for youth workers, which is consistent with what past studies find. Additionally, to explore the effects of changes in age structure on a regional economy, the estimated age-group-specific labor demand model is integrated into a regional input–output model. The integrated model suggests that ceteris paribus ageing population contributes to lowering aggregate economic multipliers due to the rapidly growing number of elderly workers who earn less than younger workers.