Unraveling the impact of workforce age diversity on labor productivity: The moderating role of firm size and job security

• Published date: 01 February 2016
• Author: Christophe Boone,Kim De Meulenaere,Tine Buyl
• DOI: http://doi.org/10.1002/job.2036
• Date: 01 February 2016

Unraveling the impact of workforce age diversity

on labor productivity: The moderating role of firm

size and job security

KIM DE MEULENAERE*, CHRISTOPHE BOONE AND TINE BUYL

Department of Management, ACED, University of Antwerp, Antwerp, Belgium

Summary Previous literature has suggested both positive and negative effects of age diversity on labor productivity:

positive because of the potential knowledge complementarities between employees of different ages and neg-

ative because of the age-related value differences that might reduce cohesion and cooperation, hampering firm

performance. Using a Belgian sample of 5892 organizational observations (2008–2011), we unraveled these

countervailing effects in two ways. First, we built on prior studies to suggest that the effect of age diversity

depends on the particular shape of the age distribution: positive when it is heterogeneous (i.e., variety) and

negative when it is polarized (i.e., polarization). This was supported by our findings. Second, we explored

the moderating impact of two contextual contingencies, firm size and job security. As expected, the positive

effect of age variety is reinforced in large firms and in firms where job security is high. Although firm size also

emphasizes the negative effect of age polarization on productivity, job security, unexpectedly, does not mod-

erate this relationship. Our study offers a valuable contribution to the literature as it reveals the boundary con-

ditions of the competing implications of age diversity and, thus, allows one to account for the inconclusive

findings reported in previous literature. Copyright © 2015 John Wiley & Sons, Ltd.

Keywords: age diversity; age variety; age polarization; labor productivity; firm size; job security

One of the key contemporary challenges facing developed societies is the aging of their populations, which also has

an irrevocable effect on the workforce age composition within organizations (European Commission, 2012). People

are generally working longer, and organizations are retaining older employees, resulting in increased age diversity

on the work floor. These trends recently spurred researchers to investigate the implications of employee age diversity

in relation to organizational performance (Grund & Westergaard-Nielsen, 2008; Kunze, Boehm, & Bruch, 2011).

Research on demographic diversity in teams and organizations, including age diversity, builds on two competing

theoretical perspectives, implying that diversity is a double-edged sword with both positive and negative effects on

organizational performance (Grund & Westergaard-Nielsen, 2008; Kunze et al., 2011, 2013; van Dijk & van Engen,

2013; Williams & O’Reilly, 1998). On the one hand, to the extent that age diversity creates a pool of complementary

age-specific knowledge and skill-based differences, potential synergies can be realized (Horwitz & Horwitz, 2007;

Lazear, 1999; Williams & O’Reilly, 1998). According to the information/decision-making perspective, mixing peo-

ple of different ages could, therefore, stimulate employee creativity, problem-solving capacity, decision-making

quality, employee productivity, and ultimately organizational performance. On the other hand, based on theories

of social similarity and categorization, demography researchers have argued that age diversity may also entail dif-

ferences in values, which might hamper cohesion, social integration, and cooperation among employees (Byrne,

1971; Carton & Cummings, 2012; van Dijk & van Engen, 2013), ultimately reducing organizational performance.

Given these competing forces, it is not surprising that empirical research on the performance effects of demo-

graphic diversity in general and age diversity in particular is fragmented and inconclusive (Grund &

Westergaard-Nielsen, 2008; Harrison & Klein, 2007; Klein & Harrison, 2007; Kunze et al., 2011; van Dijk &

*Correspondence to: Kim De Meulenaere, Department of Management, ACED, University of Antwerp, Room Z305, Prinsstraat 13, 2000

Antwerp, Belgium. E-mail: Kim.DeMeulenaere@uantwerpen.be

Copyright © 2015 John Wiley & Sons, Ltd.

Received 17 July 2013

Revised 27 May 2015, Accepted 29 May 2015

Journal of Organizational Behavior, J. Organiz. Behav. 37, 193–212 (2016)

Published online 23 June 2015 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/job.2036

Research Article

van Engen, 2013). For example, Kunze, Boehm, and Bruch (2011) reported that age diversity has a negative effect

on firm performance, mediated by affective commitment. Grund and Westergaard-Nielsen (2008), in contrast, found

that age diversity has an inverted U-shaped relationship with labor productivity.

Taken together, these inconclusive findings “may be traced back to researchers’neglect of possible mediators and

moderators in the relationship between age diversity and outcomes in the studies on organizational demography”

(Kunze et al., 2011, p. 265). While Kunze et al. (2011) focused on unmasking the mediating role of a perceived cli-

mate of age discrimination, in this paper, we propose that to reconcile the theoretical and empirical ambiguities, it is

important to investigate when age diversity has positive or negative effects on organizational performance. This ques-

tion has remained understudied in prior literature and will be addressed here by arguing that whether the positive

knowledge-based synergies can be realized or the negative value-based problems are prompted will depen d on (i)

the particular shape of the workforce age distribution (variety vs. polarization) and (ii) two important moderators

—firm size and job security—that shape the organizational context in which workforce age diversity is embedded.

First, we build on the pioneering conceptual study of Harrison and Klein (2007) to argue that the specific type of

age diversity will determine whether knowledge- or value-based age-related differences become salient, resulting in

either a positive or negative effect on organizational performance (see also Carton & Cummings, 2012). Specifically,

we disentangle “age diversity”by explicitly identifying two distinct age distributions: age variety and age polariza-

tion. Age variety—referring to the heterogeneity of ages—is expected to make knowledge differences manifest, en-

couraging the favorable synergies that increase firm performance. Conversely, age polarization—referring to the

separation of the workforce into distinct homogeneous subgroups—is expected to elicit age-related value-based sub-

groups, triggering the negative outcomes of diversity (e.g., hampered collaboration) that reduce organizational

performance.

Second, following recent research on work group diversity (including age diversity; e.g., Boehm, Dwertmann,

Kunze, Michaelis, Parks, & McDonald, 2014; Carton & Cummings, 2012; Hogg & Terry, 2000; Kunze et al.,

2011; Tsui, Porter, & Egan, 2002), we argue that the impact of workforce age composition is likely to depend on

the basic context in which people have to work together. Therefore, we introduce two important moderators, firm

size and job security, which are expected to affect the extent to which either the potential advantages or disadvan-

tages of the different types of age diversity come to the fore. We first hypothesize that in large firms, which have

a more developed internal labor market, age-specific knowledge differences can more effectively be exploited than

in small firms (Pfeffer & Cohen, 1984). As large firms are better able to optimize the match between employees and

jobs, we expect that the positive effect of age variety on firm performance will be stronger in large firms. At the same

time, we predict that the negative effect of age polarization on firm performance will be reinforced in large firms, as

the mere size of the age-related subgroups makes value-based age differences more salient, fostering negative group

processes (Boehm et al., 2014).

Our second moderator is job security, referring to the extent to which firms offer long-term employment to their

employees. As job security represents a signal of an organization’s long-term investments in its employees, from a

social exchange perspective (Blau, 1964), employees are expected to reciprocate with behaviors that benefit the or-

ganization, such as working cooperatively and sharing their diverse (here, age-related) knowledge and expertise

(Galunic & Anderson, 2000; Leana & Van Buren, 1999; Sun, Aryee, & Law, 2007). Therefore, we propose that

job security enhances the positive effect of age variety and diminishes the negative impact of age polarization on

organizational performance.

Figure 1 illustrates the theoretical model tested in the present paper. For this purpose, we used a unique, large

panel dataset comprising 5892 annual observations from 1983 Belgian organizations (2008 to 2011). Following

other researchers (Batt & Colvin, 2011; Kunze et al., 2013), we use firm-level labor productivity as a dependent var-

iable, as this is an indicator based on added value and as such is optimally suited to assess the contributi on of the

workforce to firm performance.

Our study contributes to the literature on demographic diversity as it reveals the boundary conditions of the com-

peting implications of age diversity in relation to organizational performance. We empirically demonstrate that it is

important to account explicitly for the particular shape of the age distribution (as suggested by Harrison and Klein,

194 K. DE MEULENAERE ET AL.

Copyright © 2015 John Wiley & Sons, Ltd. J. Organiz. Behav. 37, 193–212 (2016)

DOI: 10.1002/job