Heterogeneity matters: labour productivity differentiated by age and skills

This study aims at evaluating the actual profile of marginal productivity across age groups within the workforce. As age-productivity profiles might differ between occupations, we differentiate the workforce simultaneously by skills (low-skilled, high-skilled) and by age (young, middle-aged, old). Estimating a production function with a nested constant-elasticity-of-substitution (CES) specification in labour allows imperfect substitution between different categories of workers. We use French datasets for manufacturing, services and trade sectors. Labour productivity is found to be the lowest for the low-skilled older workers while high-skilled senior employees in manufacturing and trade are the most productive group. Throughout the sectors, wage rates vary considerably less than productivity and wage profiles are steeper for high-skilled workers. The relative productivity/wage ratio is found to be sector-specific. It is the highest for young workers in manufacturing while in services and trade it is the highest for the middle-age employees.