Separating Wheat and Chaff: Age-specific Staffing Strategies and Innovative Performance at the Firm Level

The lack of skilled labour is a major threat to the innovative capacity of highly developed economies. Particularly in emerging technological fields, companies hunt for qualified workers. On the one hand, in most firms highly qualified, mobile jacks-of-all-trades are assumed to be young. On the other hand, firms fear the loss of valuable expertise, with large cohorts of long-tenured and well educated baby boomer workers approaching retirement. This paper explores the effect of rejuvenation of the workforce on innovative performance of firms. We consider the age of workers who leave the establishments or who are hired. In contrast to previous studies on age effects on innovation, we identify patterns with respect to the hiring, retention and separation of workers of different age levels. We find that most of the 585 German establishments covered in this analysis rejuvenate their workforce through inflows of younger workers, and that half of them also do so through the outflow of older workers. In a second step, we account for the fact that staffing patterns may not only vary according to whether an establishment currently experiences employment growth or decline, but also according to whether it is a dominant or a dominated employer. Our results show that rejuvenation as well as changes in the age heterogeneity of the workforce varies across growth and dominance regimes. Workforces are, for example, more likely to become more age heterogeneous in growing establishments. Moreover, in times of workforce decline, rejuvenation is primarily caused by outflows of older workers – this occurs regardless of the dominance regime. Dominant establishments rejuvenate through the inflow of younger workers even in times of high labour demand. However, we do not find a robust relationship between hiring, retention or separation of workers at different age classes and the innovative performance of establishments. Our results allow for the interpretation that dominant firms are better able to separate the wheat and from the chaff from a double perspective: not only that they are able to pursue staffing strategies that are potentially more conducive to innovative performance (e.g., rejuvenation), they are also able to recruit and retain the most prolific among all segments of workers. This might be an explanation why staffing patterns related to demographic categories would not be of much relevance for innovative performance. This study is based on a large linked employer-employee panel dataset for Germany. Innovation is measured by a concise metric indicator – the share of new products or services in turnover – for the years 2000 and 2003.

Frosch, Katharina, Christian Göbel and Thomas Zwick (2011), Separating Wheat and Chaff: Age-specific Staffing Strategies and Innovative Performance at the Firm Level, ZEW Discussion Paper No. 11-047, Mannheim.