The large accumulation of firm and industry-specific human capital of older employees can be more in demand in some jobs than others (Lazear 1998).
The pace of technological change in a particular industry influences the role of different ratios of older and younger employees to the most profitable way to develop human capital within a given firm (Lazear 1998).
Recruitment, on-the-job training, and learning by doing are alternative methods of acquiring and accumulating human capital. The relative profitability of each method of developing and renewing human capital will depend upon whether internal or external sources are the cheaper suppliers of new human capital to the firm.
When technological change is rapid, knowledge of the new technology is often embodied in the formal education and recent job experiences of new entrants into the workforce and younger up-and-coming workers (Lazear 1998).
In industries with more rapid technological progress, the departure of older workers is less of a capital loss to employers. Employers may have fewer incentives to accommodate phased retirements if human capital rich replacements are available. These younger recruits may be embodied with the latest knowledge of new technologies through their formal education and schooling and their previous job experiences.
The amount of skills learnt on the job relative to formal education is important to the desired ratios of older and younger employees.
When on-the-job skills are important to the success of the firm, there is a great need for teachers to pass on these skills. Older experienced employees will be greatly valued as repositories of firm-specific human capital and as teachers to new employees (Lazear 1998).
When formal education acquitted outside the workplace is the more important way in which employees learn their skills, it will be less important for employers to invest in accommodations that retain older employees as teachers.
The extent to which the firm’s operations and customers are more idiosyncratic is important to the ratio of ratio of older and younger employees that is best for human capital accumulation (Lazear 1998).
Again, senior workers are more likely to have this special knowledge and act as teachers to recruits when the firm’s operations and customers are more idiosyncratic relative to other firms (Lazear 1998). Employers will be more reluctant to see older employees quit if they act as teachers to recruits in the ways of the firm.
An employer has less concerned if older employees plans to leave if the firm’s preferred ratio of younger to older employee is not harmed. In some cases, older employees are valued as teachers and repositories of knowledge. In other cases, staff turnover can be an opportunity to inject fresh blood (Lazear 1998). It is all in the operational particulars of each firm, the importance of on-the-job training versus formal education, and the pace of technological change in the industry.
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