Age discrimination on wages as a determinant of older workers - labour participation in Spain (refereed paper)

Spain, like the whole European Union (EU), is suffering a dramatic ageing process, while older workers (55-64 years) have high inactivity rates. In this sense, the promotion of active ageing will be necessary to guarantee the financial sustainability of pension systems as well as general macroeconomic performance. In order to achieve this purpose, it is essential to give attention to the determinants which favour older workers' participation in the labour market. In this study we focus on age discrimination in employment as one of those factors that can affect negatively older workers' labour participation. In the current literature, age discrimination in hiring or discharge has received most attention. We analyze the role which age discrimination on wages could play. The idea is that a wage below the expected discourages labour participation and may be a decisive element in choosing early retirement when combined with overly generous retirement programs. To achieve these results, the methodology of Oaxaca (1973) is applied based on data from the Spanish Structure of Earnings Survey (SES) for the years 2002 and 1995. The figures obtained show that wage discrimination towards older workers was significant in 1995 and declined in 2002. As the Oaxaca's methodology presents some problems, we propose a distributional analysis of wage discrimination by age, applying the Del Rio et al. methodology. The results confirmed the trend outlined by the first methodology.