productivity among Brazilian firms showed that wages were in fact unrelated to productivity; a study in the Netherlands found a similar disconnect between wage levels and performance.<sup>92</sup> In many East Asian countries, the seniority wage-setting practice is strong, and performance-based pay practices are not implemented.<sup>93</sup> Wages that rise above productivity levels risk lowering the competitiveness of mature workers. Analysis of firm-level data in East Asian countries shows that seniority wage practices indeed are strongly and negatively correlated with hiring workers in the age group 50-64.<sup>94</sup>

**Formal regulations also matter for labor costs and may shift these above mature workers’ productivity levels** . First, social contributions increase with wages. This can contribute significantly to raising labor costs, as in some countries social insurance contributions are very high – e.g., 45 and 36 percent of wages in Argentina and Brazil, respectively.<sup>95</sup> Especially in the presence of asymmetric information, the cost of hiring older workers may therefore be higher.<sup>96</sup> If productivity does not increase in parallel with social contributions, unit labor costs for mature workers increase. A survey of UK employers suggested that pension costs were the main deterrent to hiring mature workers – more important than the limited time frame for return on investments in skills, or any perceived lack of skills.<sup>97</sup> Similarly, employment protection legislation (EPL) can increase the costs of labor adjustments, as many regulations imply higher costs with longer job tenure. Globally, the average number of weeks’ pay required as severance in the case of dismissal increases from three for workers with one year of tenure, to 21 for workers with 10 years of tenure. In Indonesia, a worker with 10 years of service receives an average severance payment equal to 22 _months_ of wages.<sup>98</sup> Strict EPL may be one of the reasons for not hiring mature workers.<sup>99</sup>

**“Ageism” and social norms, including those reinforcing age stereotypes, also make the hiring of older workers more difficult** . The assumptions that mature workers are frail, stubborn, less capable of learning, and technologically challenged can result in age-stereotyped hiring practices and workforce management practices that reduce the productivity of mature workers—for example, if mature workers feel insecure about their jobs and thus invest less in skills.<sup>100</sup> There is significant evidence of biased perceptions and management practices with respect to older workers within firms. A survey by Generation 21 across Brazil, India, Italy, Singapore, Spain, the United Kingdom, and the United States showed that 38 percent of managers considered mature workers unwilling to take up new technology, 27 percent considered them unable to learn new skills, and 21 percent answered that mature workers did not work well with other generations. Yet, when hiring workers, the same managers valued experience above all.<sup>101</sup> In countries lacking age discrimination legislation, practices such as defining upper age limits for job vacancies – and to some extent mandatory retirement ages

> 92 Rocha 2017, Dohmen 2003.

> 93 World Bank 2016.

> 94 At the same time, seniority wages may have other underlying rationales, as firms may purposely set wages below productivity levels for younger workers and above productivity levels for older workers, to foster firm fidelity (Zwick 2009).

> 95 https://iuslaboris.com/insights/comparing-social-security-contributions-rates-across-latin-america/

> 96 OECD 2019b.

> 97 Auer and Fortenu 2000.

98 Estimates based on Employing Workers Database, https://www.worldbank.org/en/research/employingworkers 99 Bussolo et al. 2015.

100 Jin and Baumgartner 2019.

101 Generation 2021.

19