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สถาบันวิจัยเศรษฐกิจป๋วย อึ๊งภากรณ์
Puey Ungphakorn
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Call for Papers: PIER Research Workshop 2025
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Discussion Paperdp
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19 October 2015
20151445212800000
No. 006

Intertwining Inequality and Labor Market under the New Normal

Abstract

This paper builds on a life cycle model of occupational choices and financial frictions to understand the main channel through which demography and inequality influence the economy. Based on household data from Thailand, younger cohorts are likely to be workers and older cohorts are likely to be entrepreneurs due to age-dependent skills and asset accumulation. Under the new normal faced by the Thai economy as well as others, aging population can lower overall total factor productivity and increase inequality. An increase in equilibrium wage due to shortage of labor supply drives mediocre entrepreneurs to become self-employed — a low-income and low-productivity occupation — and worsens total factor productivity and hence inequality. Moreover, a decline in world interest rates associated with global aging population will exacerbate this negative effect. Reducing financial frictions or alleviating a borrowing constraint of talented entrepreneurs can mitigate this effect while extending retirement age will only improve output per capita while total factor productivity and inequality worsen.

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JEL: J11J24E24D91O15
Tags: demographic trendsoccupational choiceinequalitylife cycle modelsfinancial frictions
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Tanida Arayavechkit
Tanida Arayavechkit
City University of Hong Kong
Somprawin Manprasert
Somprawin Manprasert
Siam Commercial Bank
Jaree Pinthong
Jaree Pinthong
Bank of Thailand

Puey Ungphakorn Institute for Economic Research

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Email: pier@bot.or.th

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