If money talks, older workers are more productive – but for how long?

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Who is more productive – older workers or younger ones? A new study by the Brookings Institute suggests it is the former, although everyone may not agree with the way it reached its conclusions.

The study, by economist Gary Burtless, uses U.S. data from the social security administration to study worker productivity for the group aged between 60 and 74, compared with those aged 25 to 59. He found that as of 2011, men in the older group earned about 22 per cent more than younger men, while women had a wage premium of 10 per cent. Since wages are sometimes accepted by economists as a benchmark of productivity, he concluded that the older group are more productive.

Thing is, using wages as a measure of productivity can be a bit of stretch. An older worker, provided he or she has been at the same job for a stretch, is likely to get paid more than a younger one, simply because he or she has been around longer. The fact that so many older workers – including some much younger than 60 – have found themselves laid off and replaced by those who are younger and willing to accept lower wages is evidence that many companies do not see a correlation between wages and productivity.

But whether or not you believe that the older workers are more productive, the fact that they earn so much more than younger ones is interesting, particularly since the group studied was of a fairly advanced in age. Why are they making so much money? There is the seniority part of it of course, but what Mr. Burtless also found was that the older workers who were still in the labour force had much higher education levels than those who decided to leave. Over the 2009-12 period, the labour force participation rate of those in the 60-to-74 age group with a high school degree or less was about 25 per cent, while for those with a BA it was 40 per cent and for those with a PhD it was more than 60 per cent.

So what does this tell us about the future? Well, we know that in both Canada and the U.S., the baby boomers are more likely to have attained higher education than any previous generation. That means that as they face retirement, they are likely to emulate the older workers in the study, and have a tendency to stay in the labour force past age 60, if possible. Boomers with lower levels of education (who are also more likely to have jobs that are physically demanding) are going to be more likely to exit at traditional retirement ages, if they can.

Whether the next wave of boomers will be able to maintain an earnings edge over younger workers will be up for grabs, however. Given the turmoil in the labour market in recent years (and what looks like turbulent years to come), working sixtysomethings of the future may not be in the companies or occupations that they were in their younger years. Many, educated or not, may be in contract or consulting positions that pay less than their younger colleagues are earning – and it will not necessarily say anything about their productivity.

Linda Nazareth is a Senior Fellow at the Macdonald-Laurier Institute. Her book Economorphics: The Trends Changing Today into Tomorrow will be published by Relentless Press in January, 2014. www.economorphics.com