Age and Labour productivity

Lal FONSEKA

It is very much sure that this topic will be a subject of great debate today. The relationship between the age and job performance is that much of an important subject. Most of the youth in the modern world do argue and believe job performance declines with advancing age, even though there is no empirical evidence to support the claim. Consequently, some corporate bodies in certain countries including Sri Lanka have employed young executives in a bid to turn fortunes around.

A Chief Executive Officer in a well-to-do organization once told me that all top people working under him are young and they all are holding of MBA or higher qualifications. Though I did not make any remarks on what he said mainly due to the high respect I had towards this person, I possessed a lot of evidences to disapprove what he said.

One of the top executives who were about 50 years of age whom I knew for a long period used certain productivity improvement techniques to improve productivity in the organization where he worked which was termed as a white elephant.

Later on, he managed to turn-around this particular company into a highly profitable organization. After he retired at the age of 55 years, this company started to deteriorate and it is still struggling and trying to survive in the field of business. On the other hand, it is true that there were young people who have led their companies to generate record profits. This is the very reason I indicated that this matter will be a subject which will lead to a lengthy debate.

Take the experience of Apple Computers of the US, where the directors consigned their co-director Steve Jobs to early retirement, which led to a rapid deterioration in performance and stock valuation that nearly left the company bankrupt. Subsequently, the directors swallowed their pride and recalled Steve Jobs, well in his 60s. Over the first three years after the recall, he has presided over one of the most successful turnarounds in business history with his award winning innovations of the ipod and iphone.

Here again, one could argue that this is only about a solitary person who had some extra-ordinary skills and talents.

I would like to stress at this stage that Steve Jobs is not the one and only aged-person who had led organizations into profit making ones.

Evidence suggests that employers have mixed feelings about older workers.

They see a number of positive qualities that older people bring to their jobs, such as experience, judgment, a strong work ethic and commitment to quality.

But older people are also seen as lacking in flexibility and being resistant to new technology. But change is the only thing that is permanent in this rapidly changing world. Everyone knows that without agreeing for changes that happens every other second in the world, no organization could survive in the highly competitive commercial world.

When organizations are actively seeking individuals who are adaptable and open to change, the negatives associated with age hinder the initial hiring of older workers and increase the likelihood that they will be shown the door when downsizing. This is what exactly happened to the organization which I referred early in this article.

The young management took-over the business operation from my friend who got retired, started to downsize almost all the senior hands leaving the business open to young new recruits.

I am sure that the directors of this particular company will not recall the former man like company where Steve Jobs worked even if the company starts sinking. This is a typical south Asian attitude.

Perceptions on older peoples' productivity and ability to innovate are based on opinions and beliefs without the backing of empirical evidence. It is therefore necessary to take a look at research findings. The relevant question is, "what effect does age actually have on labour turnover, absenteeism, productivity and job satisfaction?"

Research findings show that the older you get, the less likely you will quit your job. At the same time, they are always punctual and report to work every day. One could argue here again stating that there is nothing to surprise because as workers get older, they have fewer alternative job opportunities.

Another argument you could always confront with is that older workers are less likely to resign because their long tenure tends to provide them with higher wage rates, longer paid vacations and more attractive pension benefits.

Over my lengthy experience, I have noticed that people are getting absent or keeping away from work due to two reasons. The number one is the avoidable absence and other is the unavoidable absence.

Research findings say that older employees have lower rates of avoidable absence than younger employees while they have higher rates of unavoidable absence, possibly due to the weak health and the longer recovery period those older workers take when they fall sick.

How does age affect productivity?

It is often assumed that an individual's skills -- particularly speed, agility, strength and co-ordination -- decay over time and that prolonged job boredom and lack of intellectual stimulation contribute to reduced productivity.

The evidence, however, contradicts those assumptions. During a three-year period, a large pharmaceutical retail network which has about 50 out-lets around the country staffed one of its out-let solely with employees of over 50 years.

At the end of the three-year period it emerged that the out-let staffed with workers of over 50 years of age was significantly more productive in terms of sales generated than all other out-lets with younger employees.

A few more reviews of the research found that age and job performance are unrelated.

The natural conclusion is that the demands of most jobs, even those with heavy manual labour requirements, are not extreme enough for any declines in physical skills attributable to age to have an impact on productivity, or, if there is some decay due to age, it is offset by gains due to experience. Another concern about age is its relationship with innovativeness. Some people refer to employees with graying hair as "work place dinosaurs". It is a commonly held perception that such employees are generally stuck in old ways of doing things, and are therefore incapable of being innovative any more.

Some more research findings have revealed that the most innovative individuals at the workplace today are to be found among older employees and not the young technology savvy Generation Y type, as commonly assumed.

From a management point of view, the final concern is whether there is a relationship between age and job satisfaction. On this one, research findings are mixed. Most studies indicate a positive association between age and satisfaction, at least up to age 60.

Other studies however, have found a U-shaped relationship. Satisfaction tends to increase among professionals as they age whereas it falls among non-professionals during middle age and then rises again in later years. The issue about age and performance will continue to attract different views among managers into the future. What is likely to be undeniable is that it is absolutely necessary to have a blend of youth and age in any organization in order to optimize on performance. In our country, we can notice very often competent and respected surgeons and physicians attached to state hospitals are allowed to work beyond the official retirement age of 60, but no one blames them. As long as patients come to them for treatment, they will keep on working which conclude that ageism is not a serious problem in Sri Lanka as far as the knowledge workers are concerned.

This theory will also apply to all the countries in the world unless they do have legal restrictions. Sometime ago, the retirement age was 58 years in Sri Lanka and the government took a decision to raise it to 60 years recently.

The intention of this decision of the government would have been to encourage people to work beyond the then retirement age of 58. The other reason might have been the constant requests being made by the public officers to extend their retirement age by some more years.

However, the reality is that employers, including the government, are reluctant to change their mind-set about keeping people at work for as long as they want to contribute actively in the growth of our economy.

This may be inspired by fear of a backlash from trade unions that may see the continued participation of older workers in the workplace as a threat to the chances of their younger members from progressing in their careers.

Young employees

We will now turn on to the other side of the story which is why you need to keep aged employees with you longer when there is enough of young blood is available.

Many societies in the globe have a latent inbuilt confrontational perspective on the role of youth and older people in the workplace. Younger people are often discriminated against when seeking to put their feet on the first rung of the employment ladder because of “lack of experience”.

Older workers are often labelled unemployable when they seek work in their early fifties because they are not “flexible” enough in their work practices.

The humiliation faced by older workers who have lost their job and are seeking to be reemployed is shameful in our society as much as it is in many other Western societies. Similarly humiliating is the promotion of early retirement schemes to dump older workers even if these schemes are often sold as the best thing that could happen to an older worker.

From experience I know how these schemes are at times used to get rid of valid workers who are often the voice of conscience for the organisations they work for. Some employers find these workers quite uncomfortable to have around.

The dynamics of an economy where older people are allowed to work beyond the official retirement age, if they so desire, shows that the longer workers remain active in the labour market.

This theory will stop creating new employment possibilities for younger workers. The relationship between age and job performance is likely to be an issue of increasing importance during the next decade for at least three reasons.

First there is a widespread belief that job performance declines with increasing age. Second is the workforce is aging. The third reason is the retirement age.

Like In all other countries in the globe, in Sri Lanka too, population is aging. In Sri Lanka, nearly about 2.4m are in the age group of more than 60 years (according to the Department of Census and Statistics).

The retirement age of Sri Lanka is 55 years for males and 50 years for females in the private sector and in the state sector it is 60 years of age.

Therefore, there is increasing attention to the labor market position of older workers. The current situation is that older workers are not very likely to lose their job but once they have lost their job they need a long time to find a new job.

This situation is often attributed to the gap between wages and productivity, i.e. older workers may have a wage that is higher than their productivity.

At their current employer they are protected by seniority rules and employment protection legislation. But once older workers become unemployed, employers are reluctant to hire an older worker because of the pay-productivity gap.

A lot of researching scholars have come out with evidences to show that individual performance is declining from a certain age. On the other hand, they have proved beyond any doubt that old workers have accumulated experience and knowledge over their working life which could outweigh the decline in individual performance.

Altogether, it is likely that there is a relationship between age and productivity and an aging workforce could potentially have severe consequences on the performance of the economy as a whole.

It is therefore of considerable importance to know the relationship between the age of the workforce and establishment productivity. In addition, we demonstrate that the addition of employer and employee characteristics considerably changes the age-productivity pattern measured.

In our final specification we find that the productivity does increase until the age of 40-45. However, we do not find a meaningful decline of the productivity until the age of 60. This is different from existing studies that find inverse u-shaped age productivity profiles.