An Empirical Analysis of the Impact of Employee Aging on Innovation and Productivity (Japanese)

Against the background of Japan's rapidly aging and declining working population, this study analyzes the impact of employee aging on firm innovation and productivity using data from listed firms. There are two aspects to the aging of employees. Increasing age and length of service may increase worker productivity with the accumulation of human capital through experience and learning resulting in increased proficiency in their roles in the company. On the other hand, it may slow down investment in new and ambitious innovations and businesses and organizational restructuring, leading to organizational rigidity and poor performance. In this paper, we estimate the effect of average employee age on firm productivity and innovation using data from the Development Bank of Japan's Corporate Finance Data Bank and the IIP Patent Database 2020. The main findings from the analysis are as follows. (1) While the average employee age of listed companies has continued to increase since the 1970s, there is no significant difference in average years of service. (2) Although an increase in the average age of employees increases productivity, the positive effect declines from the mid-40s and has a negative impact after the age of 45 (an inverted U-shape). (3) The increase in the average years of service of employees continues to increase corporate productivity does not form an inverted U-shape, but rather a straight line, rising to the right. (4) For relatively young firms (up to 50 years of age), years of service plays a more important role than average employee age, while for relatively old firms (51 years of age or older), average employee age is important in terms of productivity, with average years of service making little significant difference. (5) For innovation captured by patents, an increase in the average age of employees contributes positively to innovation in terms of quantity (number of patent applications), quality (number of citations within 5 years of application), novelty (number of AI and robot patents applied for), and scalability (self-similarity in patent portfolio), while an increase in average years of service has a negative impact. (6) Both average employee age and average years of service are positively related to the increase in average wages, but the age effect is larger than the effect of years of service.