Abstract
Using German establishment data, we examine the relationship between delayed compensation, training, and hiring of older workers. Both those establishments that delay compensation and those with greater human capital requirements are less likely to hire older workers. We demonstrate that the routinely used control for the age of existing workers is endogenous and that instrumenting provides stronger evidence for the role of delayed compensation. Specifically, delayed compensation is simultaneously a negative determinant of hiring older workers but a positive determinant of employing older workers and, thus, more clearly associated with “employing older workers but not hiring them.”
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Notes
Young workers may also be stronger or have education of a more recent vintage. Alternatively, employers may be prejudiced against older workers and simply discriminate against them.
Goldin (1986) makes a similar argument claiming that women are less well motivated by delayed compensation because of their lower expected tenure.
The unemployment rate of those 55 to 64 is 11.3% in Germany compared to 6.7% for EU-15 and 4.6% for all OECD counties (OECD 2005).
We thank a reviewer for highlighting the potential heterogeneity among those firms willing to hire older workers. We note that this potential heterogeneity calls for further research that isolates the type of workers these firms hire.
Note that profit sharing in Germany differs from the US where it is often a form of deferred compensation used to fund retirement.
Heywood and Jirjahn (2002) discuss the role of gender in the German labor market.
This four-way division also matches the treatment of works councils and unions in the literature examining the broader productivity effects of works councils (Huebler and Jirjahn 2003).
Daniel and Heywood (2007) find that UK unions are associated with reduced hiring of older workers.
We also estimated a very similar variant using the midpoints of the six categories.
The instrument equation is primarily identified by the critical new hires variable but also by the legal form and ownership change variables. These variables are insignificant in the hiring equation but jointly significant in the existing age equations.
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Acknowledgements
The authors thank Knut Gerlach and the anonymous referees for helpful comments. Estimates were performed in STATA 9.0 and are available from the authors.
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Heywood, J.S., Jirjahn, U. & Tsertsvardze, G. Hiring older workers and employing older workers: German evidence. J Popul Econ 23, 595–615 (2010). https://doi.org/10.1007/s00148-008-0214-7
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DOI: https://doi.org/10.1007/s00148-008-0214-7