The Impact of Aging and Age Diversity on Company Performance

Abstract

We examine how the age structure of a company's workforce affects company performance. Although, the effect of aging on individual productivity has been analyzed frequently, organizational productivity effects, which are more than the sum of individual productivities, have not. Furthermore, we do not only address the effect of changes in average age but also of changes in age diversity on organizational performance. We make a theoretical contribution by introducing a simple economic model to study the effects of workforce heterogeneity on company performance. The model provides a formal structure, i.e. cost and benefit curves, to analyze how changes in age diversity may affect organizational performance. We then break new ground by combining this economic model with theoretical insights and empirical results on aging and diversity from multiple and very diverse disciplines. As a result we derive empirically testable hypotheses which are tested in the empirical section based on a linked employer employee dataset with more than 18.000 German firms and 2 million employees.

We find new and innovative results. Although previous research has often found declining individual productivity effects with increasing age, we find that organizational productivity does not necessarily decline with average workforce age, particularly if changes in age diversity and type of tasks are controlled for. We also find that an increase in age diversity can have substantial positive productivity effects, particularly in innovative and creative companies. Our results are not only discussed in terms of statistical significance, but also with respect to economic importance and the consequences of demographic changes on organizational performance.

Keywords: Aging, Age-Diversity, Productivity, Demographic Change

JEL Classification: J10, J24, J82