DISSECTING THE IMPACT OF AGING ON PRODUCTIVITY: AN EMPIRICAL ANALYSIS

Abstract

This paper examines the relationship between workforce aging and labour productivity in European countries. Increase in the proportion of older workers is found to decrease productivity growth. Netherlands, Germany and Italy are amongst the countries which faced the largest decline in productivity growth from 1999 to 2017 due to their aging workforce. Using data from Eurostat, I run a panel fixed effects regression and find that the impact of aging on productivity differs among varying economic activities. Manufacturing and ICT activities face a decline in productivity with an aging workforce while construction and professional activities may experience an increase in productivity instead. Moreover, older workers with long-standing illnesses and health problems are found to decrease productivity growth more than healthier workers. Finally, this study posits that increasing workers’ participation rates of education and training and better healthcare systems can mitigate the fall in productivity growth.