The Structural Change and Labour Productivity of Firms : Do Changes in the Age and Wage Structure of Employees Matter?

This paper aims to clarify how changes in the age and wage composition of the labour force are related to the productivity of firms over the business cycle. Based on a matched employer-employee database of Estonian firms from 2006–2014, we decompose changes in the labour force and distinguish between hired, separated and staying workers. Considering the age and wage of workers, we link changes in the labour force to changes in productivity. Using fixed effect panel data analysis we indicate that among high-waged employees middle-aged are the most productive, the productivity decreases with age but remains higher for old compared to young. the increase in labour productivity is supported by the decreasing share of employees with the lowest productivity. The share of high-income employees was reduced in the crisis and later mostly low-income employees were hired. In addition, structural changes have accelerated the process of ageing. There are, however, sector-specific differences because in knowledge intensive services, ageing is not as prevalent as in industry. We also show that labour productivity is higher in the youngest quartile than in the oldest quartile of enterprises in all four periods