Age, seniority and labour costs: lessons from the Finnish IT revolution

Abstract

"The bad labour market performance of the workforce over 50 indicates that an aged workforce is often a burden for firms. Our paper seeks to investigate whether and why this is the case by providing evidence on the relation between age, seniority and experience, on the one hand, and the main components of labour costs, namely productivity and wages, on the other, for a sample of plants in three manufacturing industries ('forest', 'industrial machinery' and 'electronics') in Finland during the IT revolution in the 1990s. In 'average' industries - those not undergoing major technological shocks - productivity and wages keep rising almost indefinitely with the accumulation of either seniority (in the forest industry) or experience (in the industry producing industrial machinery). In these industries, the skill depreciation often associated with higher seniority beyond a certain threshold does not seemingly raise labour costs. In electronics, instead, the seniority-productivity profile shows a positive relation first and then becomes negative as one looks at plants with higher average seniority. This body of evidence is consistent with the idea that fast technical change brings about accelerated skill depreciation of senior workers. We cannot rule out, however, that our correlations are also simultaneously produced by worker movements across plants. The seniority-earnings profile in electronics is instead rather similar to that observed for the other industries - a likely symptom of the prevailing Finnish wage bargaining institutions which tend to make seniority one essential element of wage determination. In the end, seniority matters for labour costs, not age as such. But only in high-tech industries, not in the economy at large. This is well tuned with previous research on gross flows of workers and jobs in the US and other OECD countries which unveiled the productivity-driving role of resource reallocation (or lack thereof) between plants. To improve the employability of the elderly at times of fast technical change, public policy should thus divert resources away from preserving existing jobs and lend more attention to the retraining of old workers to ease their reallocation away from less productive plants (or plants where they have become less productive) into new jobs." Copyright (c) CEPR, CES, MSH, 2007.

Aging, Labor Turnover and Firm Performance

“…Since individual-level productivity measures are available only in very special cases, a field of research has emerged, where linked employer-employee data sets are used for analyzing the impact of work force characteristics, like average age or shares of employees in different age groups, on plant-or firm-level productivity and wage (e.g. Hellerstein et al, 1999;Hellerstein & Neumark, 2004;Daveri & Maliranta, 2007). A drawback of this line of studies is that they do not pay much attention to how the structure of the work force is determined, although in some studies the work force age (and other characteristics) have been instrumented (Aubert & Cré-pon, 2003;Malmberg et al, 2005;Daveri & Maliranta, 2007).…”

“…Hellerstein et al, 1999;Hellerstein & Neumark, 2004;Daveri & Maliranta, 2007). A drawback of this line of studies is that they do not pay much attention to how the structure of the work force is determined, although in some studies the work force age (and other characteristics) have been instrumented (Aubert & Cré-pon, 2003;Malmberg et al, 2005;Daveri & Maliranta, 2007).…”

The information value of central school exams

“…The significant negative effect of age seems striking at first glance. Most empirical studies investigating the age-earnings profile find a concave pattern suggesting a positive age effect for early and mid-career workers (e.g., Daveri and Maliranta (2007);Haltiwanger, Lane, and Spletzer (1999)). However, note that by focusing solely on persons graduating from university in the same year, we implicitly introduce a restriction for potential work experience after graduation, and those graduating at an older age might have needed more time to obtain their degree.…”

Retirement as an effect of employer-employee relations

“…First of all, research on the relationship between age and productivity, whether measured at the individual level or at the organizational level, does not allow one to draw firm conclusions about a drop of productivity in older age. Metaanalysis and extensive literature reviews indicate that although the age effect is sometimes observed it is not always significant; in many cases it does not occur at all, whereas some research shows an increase in performance in older groups (McEvoy and Cascio 1989;Sturman 2003;Daveri and Maliranta 2007;Hellerstein, Neumark 2007;Ng, Feldman 2008). Age-productivity relationships cannot be easily generalised.…”