Do earnings really decline for older workers?

Do earnings really decline for older workers? PurposeCross-section data suggest that the relationship between age and hourly earnings is an inverted U shape. Evidence from panel data does not necessarily confirm this finding suggesting that older workers may not experience a reduction in earnings at the end of their working life. The paper aims to discuss this issue.Design/methodology/approachIn this paper the authors use panel data on males for Great Britain in order to examine why the two types of data provide conflicting conclusions. Concentrating on the over 50s, several hypotheses are examined: overlapping cohorts, job tenure, job-changing, labour supply behaviour, and selectivity bias.FindingsCohort and individual fixed effects partly explain the divergent conclusions. However, for fully, year-on-year employed individuals, there is no evidence of earnings decline at the end of working life. The authors find no role for selectivity due to retirement, although shorter working hours or partial retirement along with job-changing late in life does provide an explanation for why hourly earnings decline for certain older workers.Originality/valueThe authors find no evidence that the process of ageing itself leads to lower earnings as suggested by the cross-section profile. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Manpower Emerald Publishing

Do earnings really decline for older workers?

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0143-7720
DOI
10.1108/IJM-02-2016-0043
Publisher site
See Article on Publisher Site

Abstract

PurposeCross-section data suggest that the relationship between age and hourly earnings is an inverted U shape. Evidence from panel data does not necessarily confirm this finding suggesting that older workers may not experience a reduction in earnings at the end of their working life. The paper aims to discuss this issue.Design/methodology/approachIn this paper the authors use panel data on males for Great Britain in order to examine why the two types of data provide conflicting conclusions. Concentrating on the over 50s, several hypotheses are examined: overlapping cohorts, job tenure, job-changing, labour supply behaviour, and selectivity bias.FindingsCohort and individual fixed effects partly explain the divergent conclusions. However, for fully, year-on-year employed individuals, there is no evidence of earnings decline at the end of working life. The authors find no role for selectivity due to retirement, although shorter working hours or partial retirement along with job-changing late in life does provide an explanation for why hourly earnings decline for certain older workers.Originality/valueThe authors find no evidence that the process of ageing itself leads to lower earnings as suggested by the cross-section profile.

Journal

International Journal of ManpowerEmerald Publishing

Published: Apr 3, 2017

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