08 Apr 2008

Differences in the Productivity Levels of Older Workers in the EU

A Cross-Country Analysis of the Age-Wage Relationship

Mateusz Walewski

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European Network of Economic Policy Research Institutes (ENEPRI) Research Report No. 49  / 24 pages

As the process of population ageing in Europe carries on and the retirement age rises, the relationship between age and productivity becomes increasingly important. There is concern that as the average age of the working individual goes up, the average rate of productivity growth will go down, resulting in the decreasing competitiveness of European economies. Furthermore, it could be expected that owing to serious differences in the labour market structures between the new member states (including current candidates) and the EU-15, the former are likely to be among the first countries to experience higher than average productivity costs owing to an ageing workforce in the near future. This report examines this hypothesis.
The research strategy applied in this study is based on the assumption that, in general, wages are correlated with productivity at the individual level and as such can be used as a proxy for productivity. Such an assumption is quite risky and can be easily criticised. Hence, based on the results of earlier studies, the main empirical analysis is limited to groups of workers for which it can be expected that the correlation between productivity and wages remains substantial.
Bearing in mind all these caveats, the results of the analysis show that the relative productivity of older workers in the new member states is lower than it is in the EU-15.