Ageing and productivity Pekka Ilmakunnas Vegard Skirbekk Jan

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 2010 -2050 (1000)

Old age dependency ratio & participation rates 50 -64 • Old age dep. ratio = Population 65+ / 20 -64 • Increase 2000 -2050: 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 41 -90 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 Region, Industry Type Mental Abilities, Personality Age Physical Abilities, Health, Strength Work Performance Job Experience Firm Characteristics Education

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 2003 -2004 • 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 diversity

Age – Productivity – team level • • • Daimler. Chrysler; 2003 -2004 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); 1990 -2002 • 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