The Older-Worker Productivity Drain Is (Mostly) a Myth: Study

It is a well-demonstrated fact that many employers view older workers as less desirable than their younger counterparts, as evidenced by age discrimination in hiring and concerns about older employees’ higher costs.

However, according to a new report from the Center for Retirement Research at Boston College, the actual empirical evidence on the effect of an aging workforce on business and economic performance is “decidedly mixed,” and much of the relevant research is sorely outdated. 

The utility of employing older workers therefore remains an open question, the CRR report argues, and in fact, the analysis finds strong evidence to suggest older workers are just as productive as younger workers — though they do earn higher wages.

Furthermore, the CRR report finds the relationship between the share of older workers, productivity and profitability varies substantially by industry. Such figures, the authors argue, show that older workers play a critical role in the ongoing success of many businesses — and their importance can only be expected to increase in the decades ahead.

Taken together, the findings of the new report offer important food for thought for business owners and older workers alike, suggesting it may be time to rethink the customary view of “aging workers.” 

Outdated and Contradictory Conclusions

Data from the U.S. Census Bureau shows the share of workers over 55 has doubled since 1997, according to the study’s authors, Laura Quinby, Gal Wettstein and James Giles.

“Despite this enormous change in the age structure of the workforce, the question of the impact of workforce aging on productivity and firm performance remains largely unsettled,” the report states. “Currently, most research on the productivity of older workers in the United States is both dated and contradictory.”

To demonstrate the point, the authors parse the findings of several “seminal” reports in the field.

The first study finds that having a larger share of workers over 55 at a firm indeed reduces productivity, while the second study finds (statistically insignificant) evidence that output actually increases with the share of workers over 55.

“Potentially more concerning, these estimates have not been updated [since 1997], more than two decades ago,” the CRR report notes. “Instead of outcomes measured quantitatively, by output or profit, recent evidence in the U.S. context tends to rely on qualitative assessments or imperfect proxies of productivity, such as turnover rates.”

A Better Way

As the authors explain, the major challenge in assessing the productivity and profitability of older workers is access to current data that links employees to their employers. 

For purposes of the new CRR paper, they base their regression analyses on information taken from three distinct databases that, in combination, better allow for the linking of employees to their employers. The data comes from the Census Bureau, the IRS and other sources.

“Linking these three datasets makes it possible to track businesses and establishments over time, while observing their revenues and payroll, and the age composition (and other demographics) of their workforces,” the authors say.

The New Results

As the authors explain, their analysis shows a correlation between the share of older workers and the productivity and profitability of the firm, but this effort does not yield a “causal estimate” of the effect of older workers on productivity.

“For example, if firms with low productivity tend not to hire new workers, the estimate will show that older workers reduce productivity when, in fact, it is low productivity that leads to an older workforce,” the report explains.

Hence, the second part of the analysis turns to what the authors call a “quasi-experimental approach,” using the age structure of the labor market in which the firm is located as an instrumental variable for the actual share of the workforce 55 and over.

With all the numbers crunched, the descriptive results for productivity “do not show a clear pattern of a negative relationship with an older workforce.”

“Excluding finance, which is a clear [negative] outlier for both productivity and profitability, other industries are roughly evenly distributed around 0, with those displaying a negative relationship with age generally more than counterbalanced by industries displaying a positive relationship with age,” the report states. 

The picture for profitability is more lopsided, the authors admit, with the estimates generally indicating that a larger share of older workers is associated with lower profits.

“The magnitude of the relationship is substantial,” the authors point out. “For many industries, a 1-percentage-point increase in the share of older workers is associated with a $1 or more decline in revenue-to-payroll metrics. This pattern is consistent with a large body of empirical evidence that wages continue to increase with tenure even after productivity growth has flattened out.”

Conclusions

In short, the authors conclude, older workers appear to be as productive as younger workers, but they may cost more to employ.

“The evidence of age discrimination in hiring suggests that some employers are being influenced by [unfounded] fears in practical management decisions, and advocates for longer working lives must contend with the fact that little evidence exists to disprove such fears,” the authors conclude. “[These new] findings give reason to hope that, in general, workforce aging is not a major concern for firm productivity and profitability.”

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