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

  • Cataldi, Alessandra

    (Sapienza University of Rome)

  • Kampelmann, Stephan


    (Free University of Brussels)

  • Rycx, Francois


    (Free University of Brussels)

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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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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  1. 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.
  2. 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.
  3. 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.
  4. Ilmakunnas, Pekka & Maliranta, Mika, 2003. "Technology, Labor Characteristic and Wage-productivity Gaps," Discussion Papers 860, The Research Institute of the Finnish Economy.
  5. Ana Cardoso & Paulo Guimarães & José Varejão, 2011. "Are Older Workers Worthy of Their Pay? An Empirical Investigation of Age-Productivity and Age-Wage Nexuses," De Economist, Springer, vol. 159(2), pages 95-111, June.
  6. 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, Statistics Norway, Research Department.
  7. Benoit Dostie, 2011. "Wages, Productivity and Aging," De Economist, Springer, vol. 159(2), pages 139-158, June.
  8. van Ours, Jan C. & Stoeldraijer, Lenny, 2010. "Age, Wage and Productivity," IZA Discussion Papers 4765, Institute for the Study of Labor (IZA).
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  10. 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.
  11. Judith K. Hellerstein & David Neumark, 2007. "Production Function and Wage Equation Estimation with Heterogeneous Labor: Evidence from a New Matched Employer-Employee Data Set," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 31-71 National Bureau of Economic Research, Inc.
  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 2005:17, Institute for Futures Studies.
  14. 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.
  15. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, June.
  16. Thierry Lallemand & François Rycx, 2009. "Are Older Workers Harmful for Firm Productivity?," De Economist, Springer, vol. 157(3), pages 273-292, September.
  17. Johnson, William R, 1978. "A Theory of Job Shopping," The Quarterly Journal of Economics, MIT Press, vol. 92(2), pages 261-78, May.
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