The workforce’s age structure and wages—Do age and the type of occupation matter?

Abstract

This study aims to analyse the relationship between a workforce’s age structure and wages. Specifically, we aim to discover whether a relationship exists between the ageing workforce as observed in a majority of European countries and average wages. Economic theory posits that to some extent, the sign of this relationship may depend on the occupational group. We suppose that in those occupational groups that require constant investment in human capital, skills and experience increase with age, and therefore, wages should increase. Consequently, in groups in which formal qualifications are not as important as physical strength, productivity decreases with age, also causing a decrease in wages. We confirm this hypothesis by using the Structure of Earnings Survey, which is collected every four years for European Union (EU) countries. We analyse the mean hourly wages across 9 major occupational groups in 27 EU economies for the period 2002–2014. Our primary variable of interest is the share of employed workers aged 50 years or older (hereafter, ‘50+’) in a given occupational group. We also control for other available variables that may be important in the evolution of wages: the educational level, share of female workers, share of part-time workers, and the level of competition between employers. The results confirm a significant relationship between the share of elderly workers and the average wages. The sign of this relationship is negative; thus, a high share of employed workers aged 50+ results in lower average wages. However, this relationship differed across occupational groups and over time.