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Ageing and employability. Evidence from Belgian firm-level data

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Abstract

The Belgian population is ageing due to demographic changes, so does the workforce of firms active in the country. Such a trend is likely to remain for the foreseeable future. And it will be reinforced by the willingness of public authorities to expand employment among individuals aged 50 or more. But are older workers employable? The answer depends to a large extent on the gap between older workers’ productivity and their cost to employers. To address this question we use a production function that is modified to reflect the heterogeneity of labour with workers of different age potentially diverging in terms of marginal products. Using unique firm-level panel data we produce robust evidence on the causal effect of ageing on productivity (value added) and labour costs. We take advantage of the panel structure of data and resort to first-differences to deal with a potential time-invariant heterogeneity bias. Moreover, inspired by recent developments in the production function estimation literature, we also address the risk of simultaneity bias (endogeneity of firm’s age-mix choices in the short run) using (1) the structural approach suggested by Ackerberg et al. Structural identification of production functions. Department of Economics, UCLA, (2006), (2) alongside more traditional system-GMM methods (Blundell and Bond in J Econom 87:115–143, 1998) where lagged values of labour inputs are used as instruments. Our results indicate a negative impact of larger shares of older workers on productivity that is not compensated by lower labour costs, resulting in a lower productivity-labour costs gap. An increment of 10 %-points of their share causes a 1.3–2.8 % contraction of this gap. We conduct several robustness checks that largely confirm this result. This is not good news for older individuals’ employability and calls for interventions in the Belgian private economy aimed at combating the decline of productivity with age and/or better adapting labour costs to age-productivity profiles.

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Notes

  1. Between 1999 and 2009, the share of individuals aged 50–65 in the total population aged 15–65 rose from 25.2 to 28.8 % (http://statbel.fgov.be).

  2. The Lisbon Agenda suggested raising employment of individuals aged 55–64 to at least 50 % by 2010.

  3. According to Eurostat, that rate has risen a bit, from 30 % in 2007 to 37 % in 2010, but is still well below the EU average.

  4. While the age of 58 is a priori the minimum access age, a lower age of 55, 56 or 57 is possible in some sectors (steel, glass, textile, etc.), presumably reflecting more arduous working conditions. Similar exceptions exist for some workers in the building industry and those who worked shifts. Even more pronounced reductions in the minimum age are possible when the company is recognized as being in real trouble, under which circumstance the age can be brought down to 52 years, or even 50.

  5. Their survey data allow them to identify individuals who (1) were early retirees and who (2) assessed their own status as being involuntary using the item "I retired early—by choice" or "I retired early—not by choice" for the questionnaire.

  6. The key idea of HN is to estimate a production function (or a labour-cost function), with heterogeneous labour input, where different types (e.g. men/women, young/old) diverge in terms of marginal product.

  7. The Structure of Earnings Survey and the Structure of Business Survey conducted by Statistics Belgium.

  8. Extending the analysis of Structure of Earnings Survey and the Structure of Business Survey to examine age-wage-productivity nexus.

  9. The raw firm-level data are retrieved from Bel-first. They are matched with data from Belgian‘s Social Security register containing detailed information about the characteristics of the employees in those firms, namely their age.

  10. According to the most recent statistics of the Belgian National Bank (http://www.nbb.be/belgostat), at the end of 2008 services (total employment—agriculture, industry and construction) accounted for 78 % of total employment, which is four percentage points more than 10 years before. Similar figures and trends characterize other EU and OECD countries.

  11. Many observers would probably posit that age matters less for productivity in a service-based economy than in one where agriculture or industry dominates.

  12. For instance, the age of the plant/establishment may affect productivity and simultaneously be correlated with the age of the workers; older workers being overrepresented in older ones.

  13. For instance, the simultaneity of a negative productivity shock (due to the loss of a major contract) and workforce ageing stemming from a recruitment freeze, causing reverse causality: from productivity to ageing.

  14. The authors use the Generalized Method of Moments (GMM) to estimate their parameters.

  15. We will see, in Sect. 2, how this assumption can be relaxed, when we present the econometric models used to identify the key coefficients of this production function.

  16. Does all this matter in practice? Our experience with firm-level data suggests values for α ranging from 0.6 to 0.8 (these values are in line with what most authors estimates for the share of labour in firms’ output/added value). This means that λ k are larger (in absolute value) than η k . If anything, estimates reported in the first column of Tables 3 and 4 underestimate the true marginal productivity difference vis-à-vis prime-age workers.

  17. We will see, how, in practice via the inclusion of dummies, this assumption can be relaxed to account for sector/industry wage effects, that must be important given Belgium’s tradition of binding sector-level wage bargaining.

  18. Labour costs used in this paper, which were measured independently of value added, include the value of all monetary compensations paid to the total labour force (both full- and part-time, permanent and temporary), including social security contributions paid by the employers, throughout the year. The summary statistics of the variables in the data set are presented in Table 1.

  19. Measured in %. This is because the logarithms, used in conjunction with differencing, convert absolute differences into relative (i.e., percentage) differences: i.e. (Y − W)/W.

  20. NUTS1 Belgian regions : Wallonia, Flanders and Brussels.

  21. NACE2 level.

  22. And its equivalent in Eq. (12).

  23. At least the part of that stock that is not affected by short-term recruitments and separations.

  24. Motorway/airport in the vicinity of logistic firms for instance.

  25. Dorn and Sousa-Poza (2010) report that, in many Continental European countries, the proportion of involuntary retirement is significantly higher in years with increasing unemployment rates. One explanation for this finding is that firms promote early retirement when they are confronted with adverse demand shocks in an economic recession.

  26. In Belgium, while 58 is a priori the minimum access age for early retirement benefits, reductions in the minimum age are possible when the company is recognized [by the Ministry of Social Affairs] as being in deep trouble, under which circumstances the age can be brought down to 52 years, or even 50.

  27. The other key feature of these methods is that they are based on the Generalized Method of Moments (GMM), known for being more robust than 2SLS to the presence of heteroskedasticity (see “Appendix” in Arellano, 2003).

  28. Consider the situation where ql it is chosen at t − b (0 < b < 1) and int it is chosen at t. Since ql it is chosen before int it , a profit-maximizing (or cost-minimizing) optimal choice of int it will generally directly depend on ql it (Ackerberg et al. 2006).

  29. Fixed effect estimators only exploit the within part of the total variation.

  30. Another illustration of the same idea is that published studies have documented, virtually without exception, enormous and persistent measured (but unexplained) productivity differences across firms, even within narrowly defined industries (Syverson 2011).

  31. Note in particular that the non identification of vector φ (ie. labour input coefficients) in the first stage is one of the main differences between ACF and LP.

  32. OLS estimates for example.

  33. For small values, the log-first-difference transformation delivers a good approximation of the relative difference in percent: ie. log(Y) − log(LC) ≈ (Y − LC)/LC.

  34. Our Stata xtabond2 command uses lags of the specified variables in levels dated t − 2 as instruments for the FD equation and uses the t − 1 first-differences as instruments in the levels equation. Full details are reported below the results tables in “Appendix”.

  35. Note that intermediate inputs are a crucial element of ACF’s modelling strategy.

  36. As suggested in Sect. 2 (Eqs. 21a, 21b, 22a, 22b, 22c, 22d), identification is provided by a set of moment conditions imposing orthogonality between implied innovation terms ξ it and k it ; ξ it and lags 1–3 of the labour inputs.

  37. Except for region, year/nace2 dummies.

  38. Note that the Sargan test is theoretically dominated by the Hansen test in case of non-sphericity of the error terms (Roodman, 2006).

  39. All our models, including OLS, use data in deviations from region (Wallonia, Flanders, Brussels) plus year interacted with NACE2 industry means. See Table 7 in the “Appendix” for a detailed presentation of the NACE2 classification.

  40. Remember that one specificity of our analysis is to assume endogeneity for both (1) the choice of the overall level of labour and (2) the age structure of the workforce.

  41. The sample of firms that are observed every year between 1998 and 2006. By and large, descriptive statistics are quite similar to those of the unbalanced set (Table 2), be it in terms of average value-added, labour cost or firm size…

  42. Electricity, gas, steam and air-conditioning supply, water supply, sewerage, waste management and remediation financial and insurance activities; activities of households as employers; undifferentiated goods activities of extra-territorial organisations and bodies real estate activities. See “Appendix”, Table 7 for more details.

  43. Remember that our overall sample already excludes firms with less than 20 employees.

  44. The relationship between firm size and labour productivity is well documented. Van Ark and Monnikhof (1996) document this relationship for France, Germany, Japan, the United Kingdom and the United States. For example, they show that in 1987, the gross output per employee in US manufacturing plants with 0–9 employees was 62 per cent of that of all manufacturing plants, while the gross output per employee in plants with 500 or more employees was 126 per cent of that of all manufacturing plants.

  45. Early retirement is very popular in Belgium (among both workers and employers), as it offers a much preferable alternative to ordinary layoffs. Early retirement benefits are relatively generous (replacement rate can reach 80 % vs. max. 60 % for unemployment benefits). They are regularly used by firms that need to downsize. While 58 is a priori the minimum access age for early retirement benefits, reductions in the minimum age are possible when the company is recognized [by the Ministry of Social Affairs] as being in real trouble, under which circumstance the age can be brought down to 52 years, or even 50.

  46. In other works, the estimated coefficients could be less negative than the actual ones.

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Acknowledgments

Funding for this research was provided by the Belgian Federal Government—SPP Politique scientifique, programme “Société et Avenir”, The Consequences of an Ageing Workforce on the Productivity of the Belgian Economy, research contracts TA/10/031A and TA/10/031B. We would like to thank Andrea Ariu and Daniel Borowczyk Martins, and anonymous referees for their helpful comments and suggestions on previous versions of this paper. We also express our gratitude to Stijn Vanormelingen and Jozef Konings for assisting us with the first steps in programming of the structural approach imagined by Ackerberg et al. (2006) to identify production functions.

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Authors and Affiliations

  1. Department of Economics, Central European University, Nádor u. 9, Budapest, 1051, Hungary

    M. Rigo

  2. Economics Department, IRES, Economics School of Louvain (ESL), Université Catholique de Louvain (UCL), 3 Place Montesquieu, 1348, Brussels, Belgium

    V. Vandenberghe & M. Rigo

  3. Departamento de Economia and Centro de Estudos Sobre Desigualdade e Desenvolvimento (CEDE), Universidade Federal Fluminense (UFF), Niterói, Brazil

    F. Waltenberg

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  1. V. Vandenberghe
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Correspondence to V. Vandenberghe.

Appendix

Appendix

See Tables 7, 8, 9, 10, 11, 12, 13, 14.

Table 7 Sectors/industries and NACE2 codes/definitions
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Table 8 (Detailing Table 3)—Parameter estimates (SE)—productivity, labour costs, and productivity-labour cost gap equations—models [4], [5] system GMM estimations
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Table 9 (Detailing Table 3)—Parameter estimates (SE)—productivity, labour costs, and productivity-labour cost gap equations—model [6] first differences + intermediate inputs ACF estimation
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Table 10 (Detailing Table 4)—Parameter estimates (SE)—productivity and productivity-labour cost gap equations—robustness analysis—model [4] system GMM estimations
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Table 11 (Detailing Table 4)—Parameter estimates (SE)—productivity and productivity-labour cost gap equations—robustness analysis model [6] IV—first differences + intermediate inputs ACF estimation
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Table 12 (Detailing Tables 5, 6)—Parameter estimates (SE), productivity and productivity-labour cost gap equations—training costs and hours, model [4] system GMM estimations
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Table 13 (Detailing Tables 5, 6)—Parameter estimates (SE), productivity, average labour costs, and equations—training costs and hours, model [6] first differences + intermediate inputs ACF estimation
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Table 14 (Detailing Table 1)—Bel-first/Carrefour panel, main variables, definition
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Vandenberghe, V., Waltenberg, F. & Rigo, M. Ageing and employability. Evidence from Belgian firm-level data. J Prod Anal 40, 111–136 (2013). https://doi.org/10.1007/s11123-012-0297-8

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