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

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  • 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).

Suggested Citation

  • Cataldi, Alessandra & Kampelmann, Stephan & Rycx, Francois, 2011. "Does It Pay to Be Productive? The Case of Age Groups," IZA Discussion Papers 5938, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp5938
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    Cited by:

    1. Andrea Garnero & Stephan Kampelmann & François Rycx, 2014. "The Heterogeneous Effects of Workforce Diversity on Productivity, Wages, and Profits," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 53(3), pages 430-477, July.
    2. Andrea Albanese & Bart Cockx & Yannick Thuy, 2020. "Working time reductions at the end of the career: Do they prolong the time spent in employment?," Empirical Economics, Springer, vol. 59(1), pages 99-141, July.
    3. Rycx, Francois & Saks, Yves & Tojerow, Ilan, 2016. "Misalignment of Productivity and Wages across Regions? Evidence from Belgian Matched Panel Data," IZA Discussion Papers 10336, Institute of Labor Economics (IZA).
    4. Carmen Camacho & Fabio Mariani & Luca Pensieroso, 2017. "Illegal immigration and the shadow economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(6), pages 1050-1080, December.
    5. François Rycx & Yves Saks & Ilan Tojerow, 2015. "Does Education Raise Productivity and Wages Equally? The Moderating Roles of Age, Gender and Industry," Working Paper Research 281, National Bank of Belgium.
    6. Muriel Dejemeppe & Catherine Smith & Bruno der Linden, 2015. "Did the Intergenerational Solidarity Pact increase the employment rate of older workers in Belgium? A macro-econometric evaluation," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-23, December.
    7. Garnero, Andrea & Kampelmann, Stephan & Rycx, Francois, 2013. "Part-time Work, Wages and Productivity: Evidence from Belgian Matched Panel Data," IZA Discussion Papers 7789, Institute of Labor Economics (IZA).
    8. Andrea ALBANESE & Bart COCKX, 2015. "Permanent Wage Cost Subsidies for Older Workers. An Effective Tool for Increasing Working Time and Postponing Early Retirement?," LIDAM Discussion Papers IRES 2015006, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    9. Lang, Julia, 2012. "The aims of lifelong learning: Age-related effects of training on wages and job security," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62073, Verein für Socialpolitik / German Economic Association.
    10. Benoît Mahy & François Rycx & Guillaume Vermeylen & Mélanie Volral, 2018. "Productivity, wages and profits: Does firms’ position in the value chain matter?," Working Paper Research 358, National Bank of Belgium.
    11. Y. Saks, 2014. "Employees: too expensive at 50? The age component in wage-setting," Economic Review, National Bank of Belgium, issue i, pages 61-74, June.
    12. Pål Børing, 2021. "The Relationship Between Firm Productivity, Wage Level and Employees’ Age: A Sectoral Perspective," De Economist, Springer, vol. 169(3), pages 367-404, August.
    13. Maciej Lis, 2017. "Productivity based selection to retirement: Evidence from EU-SILC," IBS Working Papers 02/2017, Instytut Badan Strukturalnych.
    14. 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).

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    More about this item

    Keywords

    productivity; wages; matched panel data; aging;
    All these keywords.

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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