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Are older workers overpaid? A literature review

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Abstract

It is widely believed that wage and productivity profiles of individual workers do not coincide at all ages. We give an overview of the theories which provide a rationale for this, and discuss the empirical literature. Human capital theories typically imply that wages rise with tenure, so that job reallocation at old age would imply a wage cut. Incentive theories typically imply that wages exceed productivity at the end of a worker’s career. Bargaining power of unions may also lead to ‘overpayment’ of older workers. Some general conclusions regarding the wages of older workers are formulated on basis of the authors’ reading of the empirical literature.

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  1. Department of Economics, Erasmus School of Economics, P.O. Box 1738, 3000 DR, Rotterdam, The Netherlands

    Paul de Hek

  2. Department of Social Security, CPB Netherlands Bureau of Economic Policy Analysis, P.O. Box 80510, 2508 GM, Den Haag, The Netherlands

    Daniel van Vuuren

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de Hek, P., van Vuuren, D. Are older workers overpaid? A literature review. Int Tax Public Finance 18, 436–460 (2011). https://doi.org/10.1007/s10797-011-9162-3

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