Ageing and productivity Pekka Ilmakunnas Vegard Skirbekk Jan van Ours Matthias Weiss

SET-UP Setting the Stage The Grand View Empirical studies –Absenteeism –Working capacity –Productivity: team level – plant level Conclusions and policy implications

SETTING THE STAGE

Labour force participation rates; 2003

Population Western Europe (1000)

Old age dependency ratio & participation rates Old age dep. ratio = Population 65+ / Increase : moderate – very large Participation rates 50-64: high – low Extremes –Scandinavian countries, Switzerland, US –Southern Europe (including Italy)

Participation rates 2003 – males

“Older people should be forced to retire when jobs are scarce”

Age of labour market entry and exit by birth cohort and educational attainment; Italy

Duration of labour market attachment

Norway 1801 and 2001, ages both genders

Setting the Stage - conclusions Long term developments: people grow older and work fewer years Work fewer years: preferences, incentives and misperceptions Future: increase labour supply of older workers Question: Age  Productivity?

THE GRAND VIEW

Some causes of age-variation in productivity Motivation, Energy Job Experience Mental Abilities, Personality Work PerformancePhysical Abilities, Health, Strength Education Age Firm Characteristics Region, Industry Type

Components individual productivity Physical strength Experience Cognitive abilities: –Crystallized: verbal ability; age  –Fluid: speed, memory; age 

Importance of various abilities

Productivity variation of the life cycle Combining abilities

Alternative relationships

Changes over time Supply: better health, better mental performance, longevity Demand: physical strength less important, reduced working day

The Grand View – conclusions Abilities not constant over age and cohorts Various components are affect differently by ageing

Measuring productivity (not easy) Managers’ ratings of employees Employees self-assessment Measure productivity directly Linked employer-employee datasets

EMPIRICAL STUDIES on AGE and PRODUCTIVITY Extensive margin: absenteeism Subjective measure: work capacity Intensive margin: team & plant level

Absenteeism – data Germany: Assembly plant of a German car manufacturer – any work day Finland: Quality of Working Life Survey (QWLS) 2003

Individual absence rates assembly line German car manufacturer

Age and absenteeism survey of Finnish employees

Absenteeism - conclusions Age: negative effect on incidence, positive effect on duration; overall positive effect on absence rate Age diversity: higher absence rates

Working capacity: self assessment Assuming that your top working capacity would score 10 points While your total inability to work would score 0 points How many points would you give your working capacity at the moment?

Top working capacity and the effect of chronic illness

Working capacity - conclusions Age  Working capacity  Fall not dramatic, 0.3 points in 10 years Faster drop for jobs in which physical strength is required Technological change: influence of age becomes smaller

Productivity – intensive margin Individual productivity available only in special cases Plant level & firm level data effects of: –Age –Age diversity

Age – Productivity – team level DaimlerChrysler; Productivity = quality = 1/errors Decreases with age Increases with job tenure More age diverse teams make more mistakes

Age – Productivity – plant level Finnish Linked Employer-Employee Data (FLEED); Industrial plants – total factor productivity No effect of age diversity

Relationship changes over time

Accounting for plant cohort and tenure effects

Conclusions Age-productivity relationship complex and multidimensional Relationship changes over time (across cohorts) and is affected by other factors Absenteeism  Work capacity  Productivity  Age diversity?

Policy implications Retirement plans –Anticipating early retirement reduces investments in human capital; actuarial neutral pension schemes Wage policies –Reduce seniority as a basis for wages Human resource management –More easy to try to prevent dismissals of older workers than it is to encourage hiring of older workers Employment Protection Legislation –Experience rating of dismissal costs

Negative effects of age on productivity should not be underestimated

Should not be exaggerated either