Regional Age Structure, Human Capital and Innovation - Is Demographic Ageing Increasing Regional Disparities?

Demographic ageing has increasingly become one of the most pressing challenges that industrialized economies are facing in the 21st century. In particular, this trend has raised the concern that an ageing workforce may reduce productivity, innovative capability and thus, ultimately, competitiveness in the global, knowledge-based economy. More strikingly, demographic ageing is expected to affect regions in very different ways on a regional scale. This might, in turn, lead to increasing regional disparities if innovative regions attract particularly young and educated workers and trigger a cumulative process towards more polarized regions. In addition, such regional disparities might further be enhanced by spatial spillovers induced by formal and informal interactions across firms and regions.

This paper describes the spatial and temporal pattern of regional innovation output, workers age structure and human capital by conducting an Exploratory Space-Time Data Analysis for German regions between 1995-2008. First, we detect spatial regimes or other forms of patial heterogeneity to help specifying testable hypotheses for the implementation of regression models that aim at assessing the link between regional age structure and innovation. Second, we exploit newly developed visualisation methods that allow investigating the space-time dynamics of the spatial distributions and help detecting a potential reinforcement of clusters and spatial polarization tendencies.

Overall, the results reveal a great divide across German regions. On the one hand, there are highly innovative regions that cluster in urban and rural counties in West and South Germany and mostly coincide with young and heterogenous workers. On the other hand, less idea-driven regions cluster in rural and sparsely populated areas in East Germany and coincide with an old and homogenous working population. For the space-time developments of the different measures, we observe different patterns. For instance, despite small improvements in patent production in East Germany, the spatial distribution of innovation has not changed much during the observed time period. In contrast, the local age structure shows a strong demographic polarization trend: major cities are experiencing declining average ages (relative to the national value), whereas the age distribution of rural areas is shifting upwards. East Germany with a large rural landscape is particularly affected by these trends, thus further increasing the demographic divide between both parts of the country.

The specific dynamic patterns observed suggest that the divide will further increase along agglomeration lines. In particular, major cities are gaining importance for young and educated workers since agglomerated (’thick’) labour markets increasingly offer several advantages such as cultural infrastructure and a better matching efficiency between workers and employers. Our investigations show that losing regions thereby have a small probability to reverse the trend due to strong neighbouring forces and clusterwise path dependence. For policy makers of such regions it will therefore become more important to develop strategies to counteract the geographical poverty trap such as ’big push’ type of policies.

Gregory, Terry and Roberto Patuelli (2013), Regional Age Structure, Human Capital and Innovation - Is Demographic Ageing Increasing Regional Disparities?, ZEW Discussion Paper No. 13-057, Mannheim.