The Economic Effects of Youth Drain

Abstract:
Economic change and innovation are often embodied in young generations who bring new ideas and transform the productive and organizational structure of companies. What happens to an economy if the cohort of young people, and especially the highly educated among them, shrinks significantly in size? In this paper we exploit a sudden increase in emigration of young and educated Italian citizens during the period 2010-2015 and analyze its effects on firm creation, local productivity and innovation. As the emigration decision are themselves partly driven by local economic conditions, we isolate the “pull-driven” component in the wave of migrants to reduce endogeneity and omitted variable issues. We combine this information with detailed firm-level data on the universe of Italian firms and find that youth emigration is associated with lower firm creation, decline in skill intensity in the local economy and fewer innovative startups.

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