Do Wages Continue Increasing at Older Ages? Evidence on the Wage Cushion in the Netherlands

40 Pages Posted: 30 Sep 2014

See all articles by Anja Deelen

Anja Deelen

CPB Netherlands Bureau of Economic Policy Analysis

Rob Euwals

CPB Netherlands Bureau of Economic Policy Research; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

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Date Written: August 30, 2014

Abstract

In this study, we investigate the anatomy of older workers’ wages. The central question is whether the wage cushion — i.e., the difference between actual wages and collectively agreed-upon (maximum) contractual wages — contributes to the fact that wages continue increasing at older ages. We follow the wages of individual workers in twenty-two sectors of industry in the Netherlands using administrative data for the period 2006-2010. In the public sector, we find no evidence of a wage cushion. Wage scale ceilings set in collective agreements are guiding for older workers’ wages, and workers earning a contractual wage equal to a wage scale ceiling are not compensated with higher additional wages. In the private sector, we do find evidence of a wage cushion. Wage scale ceilings are less restrictive and workers earning a contractual wage exceeding the highest wage scale ceiling experience higher contractual wage growth. The private sector wage cushion enhances wage differentiation and allows for wages that continue increasing at older ages.

Keywords: wages, economics of the elderly

JEL Classification: C23, J14, J31

Suggested Citation

Deelen, Anja and Euwals, Rob, Do Wages Continue Increasing at Older Ages? Evidence on the Wage Cushion in the Netherlands (August 30, 2014). Netspar Discussion Paper No. 08-2014-040, Available at SSRN: https://ssrn.com/abstract=2503328 or http://dx.doi.org/10.2139/ssrn.2503328

Anja Deelen

CPB Netherlands Bureau of Economic Policy Analysis ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands

Rob Euwals (Contact Author)

CPB Netherlands Bureau of Economic Policy Research ( email )

P.O. Box 80510
2508 GM The Hague, 2585 JR
Netherlands
+31 70 33 83 438 (Phone)
+31 70 33 83 350 (Fax)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany
+49 228 3894 302 (Phone)
+49 228 3894 210 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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