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

Abstract

PurposeThe purpose of this paper is to evaluate empirically the relationship between workforce age, wage and productivity at the firm level.Design/methodology/approachPanel data techniques are applied to Belgian data on private sector workers and firms during 1999‐2006.FindingsResults (robust to various potential econometric issues, including unobserved firm heterogeneity, endogeneity and state dependence) suggest that older workers are significantly less productive than prime age and young workers. In contrast, the productivity of middle‐aged workers is not found to be significantly different compared to young workers. Findings further indicate that average hourly wages within firms increase significantly with workers’ age. Overall, this leads to the conclusion that young (older) workers appear to be “underpaid” (“overpaid”).Originality/valueThese findings contribute to the growing literature on how the workforce age structure affects productivity and wages.