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February 27, 2012

[SSJ: 7222] Re: A quick clarification and two questions

From: Mark S. Manger
Date: 2012/02/27

Here's the link to a study
(http://www.voxeu.org/index.php?q=node/4713) that finds no major gap between pay (going up with age) and productivity. This is the most "age-friendly study"
I've found, and the only one that takes the endogeneity of wage structure and worker age into account.

Unfortunately, while there is no evidence of a gap, there is strong evidence of productivity declining rapidly after reaching its peak when a worker is around
50-56 years old (figure 3b).

A general literature survey is this
(http://www.demogr.mpg.de/papers/working/wp-2003-028.pd
f). The conclusion is that "Productivity reductions at older ages are particularly strong for work tasks where [mathematical] problem solving, learning and speed are needed, while in jobs where experience and verbal abilities are important, older individuals maintain a relatively high productivity level."

Estimating the effect of aging and the (alleged) ability to adapt to new technology is hard, largely because of the data one would need. This highly technical study attempts it (http://www.mrrc.isr.umich.edu/publications/conference/
pdf/Laitner-StolyarovUM%2005-04A0805C.pdf).

Here the result is rather encouraging: the accumulation of experience more than outweighs any slowing in the rate of technological adoption, so having an older workforce is actually beneficial in this regard.
Unfortunately (but intuitively) this does not hold across all workers: those without at least some college education definitely lose out, "older" in this context refers to the average age of workers, but still assumes a retirement age of 65, and it is undisputed that productivity does decline past a certain age, irrespective of technological change.

That said, my sense is that declining productivity is probably less important compared to the fiscal burden of having many more people who are definitely beyond working age.

We also don't know what the implication of a much older workforce is for technological creativity and discoveries in research etc. Productivity is not the same as making path-breaking inventions.

On that note might I also add that the Rolling Stones are still one of the best live acts on the planet, but that creatively they were a spent force by the mid-70s.

Best,

Mark

Dr Mark S MANGER
Lecturer in International Political Economy International Relations Department London School of Economics

Approved by ssjmod at 11:15 AM