Age, retirement and establishment closure

Abstract

PurposeThe paper aims to investigate the relationship between the age of employees and employers on the one hand and establishment closure probability on the other.Design/methodology/approachThe paper is based on large‐scale longitudinal Danish register data. Past employer and employee age distributions are used as predictors for future establishment closure probability by means of a discrete‐time hazard model.FindingsThe paper shows that the age of the employer and the age distribution of the employees are predictors of an establishment's future closure probability. This probability assumes a temporary maximum when employers or large shares of employees are reaching retirement age. Estimates suggest that a ten percent increase in the share of employees who will be of retirement age in the future increases future annual closure probability by approximately ten percent.Research limitations/implicationsIt is possible to interpret the finding of temporary maxima in the closure probabilities as the result of the retirement decisions of individuals. However, this interpretation of the results would have to rest on an identifying assumption. Also, findings are driven by small establishments, and should not be generalised to firms of medium size or above.Practical implicationsThe paper can be used to make predictions of future establishment closure rates.Social implicationsPolicies that reduce the costs of employee turnover and firm ownership changes might decrease closure rates.Originality/valueThis paper adds to our knowledge of the relationships between the age of individuals and firm performance. Also, it considers the role of retirement as a largely overlooked determinant of industry dynamics.