The determinants of hiring older workers in Britain revisited: an analysis using WERS 2004

Abstract

This article reexamines the role of specific human capital and back loading of compensation as deterrents to hiring older workers. We utilize the framework initially suggested by Hutchens (1986) and more recently implemented by Daniel and Heywood (2007). This approach identifies the extent to which firms hire older workers at a rate less than full replacement would imply. Using the 2004 British Workplace Employment Relations Survey, we examine whether a more favourable climate including a much tighter UK labour market combined with the abandonment of defined benefit pension schemes has increased the tendency to hire older workers. We also examine the impact of private health insurance.

Acknowledgements

We acknowledge the Department of Trade and Industry, the Economic and Social Research Council, the Advisory, Conciliation and Arbitration Service and the Policy Studies Institute as the originators of the 1998 Workplace Employee Relations Survey data and the 2004 Workplace Employment Relations Survey data, and the Data Archive at the University of Essex as the distributor of the data. The National Centre for Social Research was commissioned to conduct the survey fieldwork on behalf of the sponsors. None of these organizations bears any responsibility for the author's analysis and interpretations of the data.

Notes

¹ The decline in defined benefit pension schemes affects both younger and older workers equally as entitlement tend to be removed from all new hires.

² This issue was not explicitly considered by Daniel and Heywood (2007).

³ They failed to find, however, any relationship between defined contribution pension plans and the probability of older workers being hired.

⁴ However, Kersley et al. (2006) find that only 20% of firms monitor age trends in recruitment, 7% in the case of promotion and 6% in the case of pay, so that such anticipatory behaviour is not likely to be universal.

⁵ The hypothesis refers to the phenomenon where labour contracts are long term and where most employees tend to have long tenure. For example, the concept of internal labour market explains internal promotion.

⁶ WERS is only conducted in occasional years.

⁷ All our regressions use the probability weights provided by the WERS to account for its stratified sampling design.

⁸ Needless to say, this takes into account the relative quit rates of younger and older workers.

⁹ Weights are used to obtain unbiased population estimates, to account for the sample design. The establishment weight represents the inverse of the probability of selection of each workplace into the sample. The employee weight is used to indicate the proportion of employees, to whom a particular workplace characteristic applies and is derived by multiplying the establishment weight by the total number of employees.

¹⁰ The variables concerned were the same as used by Daniel and Heywood, namely the use of performance appraisal, profit sharing and the nature of demand for the industry. The criterion for selection is the reasonable expectation that these variables will have an impact on the number of hires but not on the age of hires. Although profit sharing negatively influenced the amount of hiring, we were unable to reject the hypothesis that the selection model shed no further light on our estimates of the determinants of older hires.

¹¹ This can equally apply to career or non-career jobs. Since the latter can still be an efficient way of ‘bridging’ to retirement.