Aging workforce, wages, and productivity: Do older workers drag productivity down in Korea?

Abstract

Older workers stay longer in the labor market due to increasing life expectancy and retirement age. The aging workforce is perceived to create challenges to the current labor markets including productivity, yet our understanding of how the demographic transition and aging workforce affect the labor market and firms’ productivity is limited. Using the 2007–2019 Korean Workplace Panel Survey, we examine the effect of the workforce age structure on wage per worker and labor productivity of firms. The workforce age structure is disaggregated into three age groups: young workers (16–29 years), prime-age workers (30–49 years), and older workers (50 years and higher). Wage and value-added per worker are selected as measures of labor costs and productivity. The ordinary least squares regression results suggest no statistically significant association of firms’ wage per worker and labor productivity with the share of young workers but a negative association with the share of older workers. Yet, in some regions, sectors, and firms, older workers show comparable productivity to prime-age workers while their wages are lower than that of prime-age workers. Its association is particularly apparent in the unstable and low-wage sectors, small to medium size firms, and the Capital Region (Seoul and surrounding areas including Incheon megacity and Gyeonggi province) and six other megacities. Once the difference-GMM addresses the potential endogeneity issue, we find no association between the shares of both young and older workers and firms’ wages and productivity.