The age-wage-productivity puzzle: Evidence from the careers of top earners

There is an inverted u-shaped relationship between age and wages in most labor markets, but the effects of age on productivity are often unclear. We use panel data in a market of high earners, professional footballers (soccer players) in North America, to estimate age-productivity and age-wage profiles. We find stark differences; wages increase for several years after productivity has peaked, before dropping sharply at the end of a career. This poses the question: why are middle-aged workers seemingly overpaid? We investigate a range of possible mechanisms that could be responsible, only finding evidence that tentatively supports a talent discovery theory.

Automated summary

There is an inverted U-shaped relationship between age and wages in most labor markets, but the effects of age on productivity are often unclear. Using panel data of professional footballers (soccer players) in North America, who are high earners, we find stark differences in age-productivity and age-wage profiles. Wages increase for several years after productivity has peaked, before dropping sharply at the end of a career. Tentative evidence suggests that talent discovery theory may explain why middle-aged workers are seemingly overpaid.