Analysis of Aging Workforce Suggests Declining Economic Value for Many Firms

Francesco Daveri and Mika Maliranta presented their paper "Age, Technology and Labour Costs" at 43rd Economic Policy Panel Meeting in Vienna (April 20, 21, 2006). According to their abstract, the paper seeks to answer the question "Is the process of workforce aging a burden or a blessing for the firm?" by providing evidence on the age-productivity and age-earnings profiles for a sample of plants in three manufacturing industries (“forest”, “industrial machinery” and “electronics”) in Finland.

Our main result is that exposure to rapid technological and managerial changes does make a difference for plant productivity, less so for wages. In electronics, the Finnish industry undergoing a major technological and managerial shock in the 1990s, the response of productivity to age-related variables is first sizably positive and then becomes sizably negative as one looks at plants with higher average seniority and experience. This declining part of the curve is not there either for the forest industry or for industrial machinery. It is not there either for wages in electronics. These conclusions survive when a host of other plausible productivity determinants (notably, education and plant vintage) are included in the analysis. We conclude that workforce aging may be a burden for firms in high-tech industries and less so in other industries.

On the more optimistic side, they do note in the paper that "older workers int eh future will be likely more educated than they are today and therefore, as also implied by our results, they may be more apt to deal with the Next Big Things."

A draft of Working Paper No. 309 is available on the IGIER website.

Source: Abstract Innocenzo Gasparini Institute for Economic Research (IGIER) (April 11, 2006)