Does it pay to be productive? The case of age groups

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 AbstractUsing 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), middleaged (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).

The Heterogeneous Effects of Workforce Diversity on Productivity, Wages, and Profits

“…In contrast, firm profitability is found to depend negatively on age diversity. According to Cataldi, Kampelmann, and Rycx (), older (younger) workers tend to be “overpaid” (“underpaid”) in Belgian private sector firms. Hence, the negative effect of age diversity on profitability is likely to derive from the fact that: (1) increases in age diversity are essentially the consequence of an aging workforce, and (2) the “overpayment” of older workers may outweigh the “underpayment” of younger workers (as suggested by Cataldi, Kampelmann, and Rycx ).…”

“…This technique was pioneered by Hellerstein and Neumark () and refined by Hellerstein, Neumark, and Troske (); Hellerstein and Neumark (); Aubert and Crépon (); and van Ours and Stoeldraijer (). It is now standard in the literature on the productivity and wage effects of labor heterogeneity (see, e.g., Cataldi, Kampelmann, and Rycx ; Göbel and Zwick ; Vandenberghe ).…”

The Aims of Lifelong Learning: Age-Related Effects of Training on Wages and Job Security

“…Concerning empirical evidence, some studies find a wage-productivity gap for older workers (e.g. Dostie, 2006, Cataldi et al, 2011 where others report no evidence for older employees' productivity lagging behind wages (e.g. van…”

Misalignment of productivity and wages across regions: evidence from Belgium

“…Age is another individuallevel variable that has been linked to productivity-wage gaps in Belgium. Various studies have shown that older workers tend to be 'over-paid' (at given productivity) with respect to their younger co-workers (Cataldi, Kampelmann, & Rycx, 2012;Lallemand & Rycx, 2009;Vandenberghe, 2011Vandenberghe, , 2013.…”