Are Older Workers Worthy of Their Pay? An Empirical Investigation of Age-Productivity and Age-Wage Nexuses

23 Pages Posted: 24 Aug 2010

See all articles by Ana Rute Cardoso

Ana Rute Cardoso

Instituto de Analisis Economico (IAE-CSIC); Barcelona Graduate School of Economics (Barcelona GSE); IZA Institute of Labor Economics

Paulo Guimaraes

University of South Carolina - Darla Moore School of Business; IZA Institute of Labor Economics

José Varejão

Universidade do Porto - Faculdade de Economia (FEP)

Abstract

Using longitudinal employer-employee data spanning over a 22-year period, we compare age-wage and age-productivity profiles and find that productivity increases until the age range of 50-54, whereas wages peak around the age 40-44. At younger ages, wages increase in line with productivity gains but as prime-age approaches, wage increases lag behind productivity gains. As a result, older workers are, in fact, worthy of their pay, in the sense that their contribution to firm-level productivity exceeds their contribution to the wage bill. On the methodological side, we note that failure to account for the endogenous nature of the regressors in the estimation of the wage and productivity equations biases the results towards a pattern consistent with underpayment followed by overpayment type of policies.

Keywords: aging, productivity, wages

JEL Classification: J14, J24, J31

Suggested Citation

Cardoso, Ana Rute and Guimaraes, Paulo and Varejão, José, Are Older Workers Worthy of Their Pay? An Empirical Investigation of Age-Productivity and Age-Wage Nexuses. IZA Discussion Paper No. 5121, Available at SSRN: https://ssrn.com/abstract=1663141 or http://dx.doi.org/10.2139/ssrn.1663141

Ana Rute Cardoso (Contact Author)

Instituto de Analisis Economico (IAE-CSIC) ( email )

Campus UAB
Barcelona, Bellaterra 08193
Spain
3436917157 (Phone)

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany
492283894508 (Phone)
492273894510 (Fax)

Paulo Guimaraes

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

José Varejão

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

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