Aging Workforce, Productivity, and Wages in Japan

We use a panel data set of Japanese firms from 2005 to 2019 to examine how a firm’s employee age structure affects its productivity and wages. The pooled ordinary-least-squares (OLS) results indicate a negative relationship between the proportion of older employees and labor productivity. However, the effects disappear after applying a fixed effects (FE) model and the generalized method of moments to consider the unobserved heterogeneity among firms. Moreover, the proportion of older employees does not significantly affect firms’ wages. We further examine firm heterogeneity as a factor that contributes to the difference between the pooled OLS and FE estimates. The results suggest that differences in corporate stakeholder characteristics and corporate governance, such as the presence of labor unions and proportion of foreign ownership, may be related to the ratio of older workers and corporate performance.