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

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  • Francesco Daveri
  • Mika Maliranta

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.

Suggested Citation

  • Francesco Daveri & Mika Maliranta, 2007. "Age, seniority and labour costs: lessons from the Finnish IT revolution," Economic Policy, CEPR;CES;MSH, vol. 22, pages 117-175, January.
  • Handle: RePEc:bla:ecpoli:v:22:y:2007:i::p:117-175
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    1. repec:spr:epolit:v:35:y:2018:i:1:d:10.1007_s40888-017-0079-x is not listed on IDEAS
    2. Ichino, Andrea & Schwerdt, Guido & Winter-Ebmer, Rudolf & Zweimüller, Josef, 2017. "Too old to work, too young to retire?," The Journal of the Economics of Ageing, Elsevier, vol. 9(C), pages 14-29.
    3. Francesco Daveri & Maria Laura Parisi, 2010. "Experience, innovation and productivity. Empirical evidence from Italy's slowdown," Working Papers 1009, University of Brescia, Department of Economics.
    4. Schwerdt, Guido & Woessmann, Ludger, 2017. "The information value of central school exams," Economics of Education Review, Elsevier, vol. 56(C), pages 65-79.
    5. Sandrine Levasseur, 2008. "Progrès technologique et employabilité des seniors," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(3), pages 155-184.
    6. Uschi Backes-Gellner & Stephan Veen, 2013. "Positive Effects of Ageing and Age-Diversity in Innovative Companies - Large Scale Evidence on Company Productivity," Economics of Education Working Paper Series 0093, University of Zurich, Department of Business Administration (IBW).
    7. Peng, Fei & Anwar, Sajid & Kang, Lili, 2017. "New technology and old institutions: An empirical analysis of the skill-biased demand for older workers in Europe," Economic Modelling, Elsevier, vol. 64(C), pages 1-19.
    8. Börsch-Supan, Axel & Weiss, Matthias, 2016. "Productivity and age: Evidence from work teams at the assembly line," The Journal of the Economics of Ageing, Elsevier, vol. 7(C), pages 30-42.
    9. Schneider, Lutz, 2011. "Zum Einfluss von Alter und Erfahrung auf Produktivitäts- und Lohnprofile - Befunde einer Linked-Employer-Employee-Analyse," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48728, Verein für Socialpolitik / German Economic Association.
    10. Michael Berlemann & Marco Oestmann & Marcel Thum, 2014. "Demographic change and bank profitability: empirical evidence from German savings banks," Applied Economics, Taylor & Francis Journals, vol. 46(1), pages 79-94, January.
    11. Katharina Frosch, 2009. "Do only new brooms sweep clean? A review on workforce age and innovation," MPIDR Working Papers WP-2009-005, Max Planck Institute for Demographic Research, Rostock, Germany.
    12. Nathalie Greenan & Pierre-Jean Messe, 2014. "Transmission of vocational skills at the end of career: horizon effect and technological or organisational change," Working Papers halshs-01143496, HAL.
    13. Frosch, Katharina & Göbel, Christian & Zwick, Thomas, 2011. "Separating wheat and chaff: age-specific staffing strategies and innovative performance at the firm level
      [Den Weizen von der Spreu trennen: Altersbezogene Personalpolitik und Innovationen auf der
      ," ZEW Discussion Papers 11-047, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    14. Pekka Ilmakunnas & Seija Ilmakunnas, 2011. "Diversity at the Workplace: Whom Does it Benefit?," De Economist, Springer, vol. 159(2), pages 223-255, June.
    15. Pekka Ilmakunnas & Mika Maliranta, 2016. "How does the age structure of worker flows affect firm performance?," Journal of Productivity Analysis, Springer, vol. 46(1), pages 43-62, August.
    16. Beate Henschel & Carsten Pohl & Marcel Thum, 2008. "Demographic Change and Regional Labour Markets: The Case of Eastern Germany," CESifo Working Paper Series 2315, CESifo Group Munich.
    17. Christian Göbel & Thomas Zwick, 2012. "Age and Productivity: Sector Differences," De Economist, Springer, vol. 160(1), pages 35-57, March.
    18. Vincenzo Atella & Lorenzo Carbonari, 2017. "Is gerontocracy harmful for growth? A comparative study of seven European countries," Journal of Applied Economics, Universidad del CEMA, vol. 20, pages 141-168, May.
    19. Uschi Backes-Gellner & Stephan Veen, 2008. "The Impact of Workforce Age Heterogeneity on Company Productivity," Working Papers 0078, University of Zurich, Institute for Strategy and Business Economics (ISU), revised Sep 2009.
    20. Daniel Vuuren, 2014. "Flexible Retirement," Journal of Economic Surveys, Wiley Blackwell, vol. 28(3), pages 573-593, July.
    21. repec:eee:joecag:v:1-2:y:2013:i::p:72-82 is not listed on IDEAS
    22. Peng, Fei & Kang, Lili, 2013. "Cyclical changes in the wage structure of the United Kingdom: a historical review of the GHS 1972-2002," MPRA Paper 47210, University Library of Munich, Germany.
    23. O'Mahony, Mary & Peng, Fei, 2009. "Skill bias, age and organizational change," MPRA Paper 38767, University Library of Munich, Germany.
    24. Atella, Vincenzo & Carbonari, Lorenzo, 2012. "When elders rule: is gerontocracy harmful for growth?," MPRA Paper 36574, University Library of Munich, Germany.

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