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Does It Pay to Be Productive? The Case of Age Groups

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Author Info

  • Cataldi, Alessandra

    (Sapienza University of Rome)

  • Kampelmann, Stephan

    ()
    (Free University of Brussels)

  • Rycx, Francois

    ()
    (Free University of Brussels)

Abstract

Using longitudinal matched employer-employee data for the period 1999-2006, we investigate the relationship between age, wage and productivity in the Belgian private sector. More precisely, we examine how changes in the proportions of young (16-29 years), middle-aged (30-49 years) and older (more than 49 years) workers affect the productivity of firms and test for the presence of productivity-wage gaps. Results (robust to various potential econometric issues, including unobserved firm heterogeneity, endogeneity and state dependence) suggest that workers older than 49 are significantly less productive than prime age and young workers. In contrast, the productivity of middle-age workers is not found to be significantly different compared to young workers. Findings further indicate that average hourly wages within firms increase significantly and monotonically with age. Overall, this leads to the conclusion that young workers are paid below their marginal productivity while older workers appear to be "overpaid" and lends empirical support to theories of deferred compensation over the life-cycle (Lazear, 1979).

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5938.

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Length: 29 pages
Date of creation: Aug 2011
Date of revision:
Publication status: published in: International Journal of Manpower, 2012, 33 (3), 264-283
Handle: RePEc:iza:izadps:dp5938

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Keywords: productivity; wages; matched panel data; aging;

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References

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  1. Benoit Dostie, 2006. "Wages, Productivity and Aging," Cahiers de recherche 0645, CIRPEE.
  2. Thierry Lallemand & François Rycx, 2009. "Are Older Workers Harmful for Firm Productivity?," De Economist, Springer, vol. 157(3), pages 273-292, September.
  3. Grund, Christian & Westergård-Nielsen, Niels, 2005. "Age Structure of the Workforce and Firm Performance," Working Papers 05-10, University of Aarhus, Aarhus School of Business, Department of Economics.
  4. Axel Börsch-Supan & Alexander Ludwig, 2010. "Old Europe Ages: Reforms and Reform Backlashes," NBER Chapters, in: Demography and the Economy, pages 169-204 National Bureau of Economic Research, Inc.
  5. Torbjørn Hægeland & Tor Jakob Klette, 1997. "Do Higher Wages Reflect Higher Productivity? Education, Gender and Experience Premiums in a Matched Plant-Worker Data Set," Discussion Papers 208, Research Department of Statistics Norway.
  6. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  7. Pekka Ilmakunnas & Mika Maliranta, 2005. "Technology, Labour Characteristics and Wage-productivity Gaps," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(5), pages 623-645, October.
  8. Julia I. Lane & John C. Haltiwanger & James Spletzer, 1999. "Productivity Differences across Employers: The Roles of Employer Size, Age, and Human Capital," American Economic Review, American Economic Association, vol. 89(2), pages 94-98, May.
  9. Judith K. Hellerstein & David Neumark, 2004. "Production Function and Wage Equation Estimation with Heterogeneous Labor: Evidence from a New Matched Employer-Employee Data Set," NBER Working Papers 10325, National Bureau of Economic Research, Inc.
  10. Bertschek, Irene & Meyer, Jenny, 2008. "Do Older Workers Lower IT-Enabled Productivity? Firm-Level Evidence from Germany," ZEW Discussion Papers 08-129, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, December.
  12. Vegard Skirbekk, 2003. "Age and individual productivity: a literature survey," MPIDR Working Papers WP-2003-028, Max Planck Institute for Demographic Research, Rostock, Germany.
  13. Malmberg, Bo & Lindh, Thomas & Halvarsson, Max, 2005. "Productivity consequences of workforce ageing - Stagnation or a Horndal effect?," Arbetsrapport, Institute for Futures Studies 2005:17, Institute for Futures Studies.
  14. Cardoso, Ana Rute & Guimaraes, Paulo & Varejão, José, 2010. "Are Older Workers Worthy of Their Pay? An Empirical Investigation of Age-Productivity and Age-Wage Nexuses," IZA Discussion Papers 5121, Institute for the Study of Labor (IZA).
  15. Johnson, William R, 1978. "A Theory of Job Shopping," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 92(2), pages 261-78, May.
  16. Göbel, Christian & Zwick, Thomas, 2009. "Age and productivity: evidence from linked employer employee data," ZEW Discussion Papers 09-020, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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Cited by:
  1. Garnero, Andrea & Kampelmann, Stephan & Rycx, Francois, 2013. "Part-time Work, Wages and Productivity: Evidence from Belgian Matched Panel Data," IZA Discussion Papers 7789, Institute for the Study of Labor (IZA).
  2. Julia Lang, 2012. "The Aims of Lifelong Learning: Age-Related Effects of Training on Wages and Job Security," SOEPpapers on Multidisciplinary Panel Data Research 478, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. Garnero, Andrea & Kampelmann, Stephan & Rycx, François, 2013. "The Heterogeneous Effects of Workforce Diversity on Productivity, Wages and Profits," CEPREMAP Working Papers (Docweb) 1304, CEPREMAP.
  4. Lang, Julia, 2012. "The aims of lifelong learning: Age-related effects of training on wages and job security," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62073, Verein für Socialpolitik / German Economic Association.

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