Are Older Workers Worthy of Their Pay? An Empirical Investigation of Age-Productivity and Age-Wage Nexuses

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. Using longitudinal employer-employee data spanning over a 22-year period, we compare age-wage and age-productivity profiles and find that productivity increases until the age range of 50-54, whereas wages peak around the age 40-44. At younger ages, wages increase in line with productivity gains but as prime-age approaches, wage increases lag behind productivity gains. As a result, older workers are, in fact, worthy of their pay, in the sense that their contribution to firm-level productivity exceeds their contribution to the wage bill. On the methodological side, we note that failure to account for the endogenous nature of the regressors in the estimation of the wage and productivity equations biases the results towards a pattern consistent with underpayment followed by overpayment type of policies. JEL Classification:J14, J24, J31

Productivity effects of knowledge transfers through labour mobility

“…The peak with the highest productivity is however not clear and depending on the worker's skill level. Recent studies by Cardoso et al (2011) and Göbel and Zwick (2009) find an increase in productivity until the mid 50ies and only a slight decrease in productivity afterwards. Cardoso et al (2011) thus conclude that "older workers are, in fact, worthy of their pay".…”

“…Recent studies by Cardoso et al (2011) and Göbel and Zwick (2009) find an increase in productivity until the mid 50ies and only a slight decrease in productivity afterwards. Cardoso et al (2011) thus conclude that "older workers are, in fact, worthy of their pay". The reasons for this strong increase in firm productivity through older employees are their large knowledge stock and resulting spillovers to younger employees, a positive selection of older people which are still in the workforce as well as a usually better matching of their abilities with the needs of the employer compared to younger workers.…”

“…Some papers cautiously point in the direction of a Productivity Effects of Knowledge Spillovers resulting from Labour Mobility (2013) 25 negative productivity-age relationship (Hellerstein et al 1996;Kotlikoff and Gokhale 1992), others like Cardoso et al (2011) suggest a positive relationship, even after controlling for wages, while others find no conclusive evidence at all (Hellerstein et al 1999;Hellerstein and Neumark 1995 ). A number of studies find a form of inverted U-shaped work performance profile (Cardoso et al 2011;Göbel and Zwick 2009;Crépon et al 2003;Ilmakunnas et al 1999). The peak with the highest productivity is however not clear and depending on the worker's skill level.…”

Are Occupations Paid What They are Worth? An Econometric Study of Occupational Wage Inequality and Productivity

“…The empirical work on wage compression, for instance, does not consider productivity-wage gaps between, but only within occupations (Scully, 1974;Frank, 1984). More recent econometric studies on productivity-wage comparisons have focused on categories like sex, ethnicity or age instead of occupations (Haegeland and Klette, 1999;Aubert and Crépon, 2003;Ilmakunnas and Maliranta, 2005;Cataldi et al, 2011;Cardoso et al, 2011;Dostie, 2011;Ilmakunnas and Ilmakunnas, 2011;Vandenberghe, 2011a,b;van Ours and Stoeldraijer, 2011). Other studies only include relatively broad occupational categories as control variables in wage and productivity equations (Hellerstein et al, 1999;Crépon et al, 2002;Hellerstein and Neumark, 2007;Göbel and Zwick, 2009).…”

Firms’ contribution to the internal and external employability of older employees: evidence from Germany

“…In particular, it has been argued that employees' productivity decreases with age, while their wages tend to increase (Skirbekk 2003). However, more recent studies find no evidence that productivity declines with age (Börsch-Supan et al 2008;Cardoso et al 2011), but employers in Europe remain expecting higher productivity-pay gaps among older employees than among the younger (Conen et al 2012). Furthermore, outdated skills and qualifications as well as bad health of older employees are assumed to result in lower internal and external employability (Haan and Myck 2009;Hofäcker 2010).…”