Workforce Planning: Aging and Employment 

Module 2: Labor Markets—Barbara McIntosh, Ph.D.

Module 2: Labor Markets Overview

• Labor market theory.

• Labor force participation rates (LFPR) and age.

• Labor markets: race and gender considerations.

• Labor market alternatives: productive activity in other venues.

Labor Market Theory: Supply

W¹

W²

Wⁿ

L¹ L² Lⁿ

Supply curve: employees

Labor Market Theory: Demand

W¹

W²

Wⁿ

L¹ L² Lⁿa

Employer demand curve

b

Equilibrium: Determined by Market

W¹

W²

Wⁿ

L¹ L² Lⁿ

Supply/employee

Demand/employer

Individual Perspective: Two Questions

• Should I work or not?This determines labor force participation.

• If I choose to work, how many hours do I want to supply?

These are independent questions in theory.This assumes the worker has a choice.In reality, the outcome (once demand side enters in) makes these questions very interdependent.

Individual Labor Supply Decision

Look at the worker as a consumer.

1) Labor supply is derived supply. The individual works primarily because he/she needs income.

2) Except for the need for income, the individual would rather not work.

Decide how much a worker will work by recognizing there is a trade-off. The trade-off is between work and leisure (two goods).

All leisure results in no income, and all work (income) results in no leisure.

Individual Labor Supply Decision (2)

(Daily decision)

Work

Income

Leisure (non-work)

24 hours

Individual Labor Supply Decision (3)

W

L

S>I

I>S

Substitution effect = The price of leisure (opportunity cost)↑, leisure is relatively more expensive, work more, L↑

Income effect = Can afford more of all goods including leisure; work less L↓

Actual Labor Supply

• Individuals do not have control over hours (certainly not on a daily basis).More emphasis today is on flexibility as a mechanism to recruit and retain older workers. Historically, 8-hour days, 50 weeks/yr.

• Income is NOT the only determinant of labor supply. Social/psychological/intrinsic rewards of work are very important, particularly for older workers.

Labor Force Measurement

Population vs. Civilian Labor Force> CPS (current population survey) data.*> To be counted in the labor force, you must be able

and willing to work and actively seeking employment.

> Labor force excludes children, students, homemakers, institutionalized (mental, criminal), retirees, military, and discouraged workers (able and willing, but unable to find work so they are no longer trying).

* The description of the current population survey and links to current employment statistics can be found at www.census.gov/cps/.

Labor Force Participation Rates

Projected Labor Force Participation Rates

Men Women

Year 55-64 65-74 75+ 55-64 65-74 75+

1994 65.5% 21.7% 8.6% 48.9% 13.6% 3.5%

2004 68.7% 26.7% 9.0% 56.3% 18.0% 4.3%

2014 68.7% 31.5% 13.1% 61.9% 22.9% 7.2%

What does this mean?

• LFPR for older workers is increasing.

• Cohort differences.

• Gender.

• Race.

LFPR in Context: Productive Activity Domains

• There are multiple alternatives regarding time use; it is still productive activity.

• Domains:• Paid work outside the home.• Unpaid work at home.• Unpaid work outside home.

See: Danigelis, N.L., & McIntosh, B.R. (1993). Resources and the productive activity of elders: Race and gender as contexts. Journal of Gerontology: Social Sciences, Vol. 48, No. 4, S192-S203.

Productive Activity Types: By Race and Gender

• For workers 60+ (across all domains): > W females most productive (1,607 hours). > W males least productive (1,140 hours).

(40 hours/50 weeks =2,000 hours.)

• Paid work: WM→BM→WF→BF.

• Unpaid home: WF→BF→BM→WM.

• Unpaid outside: WF→WM →BF→BM.

Productive Activity: Resource Predictors - Paid Work

• WM: Income, physical ability.

• BM: Income, physical ability, education, assets.

• WF: Being married, education, assets.

• BF: Income, physical ability, assets.

• Age: Significant predictor for all groups, largest predictor for women.

Productive Activity: Resource Predictors - Unpaid Work at Home

• WM: Being married, physical ability.

• BM: Household size.

• WF: Household size, physical ability, being married.

• BF: Household size, physical ability, age.

Productive Activity: Resource Predictors - Unpaid Outside the Home

• WM: Education, physical ability.• BM: No significant predictors.• WF: Education, physical ability, age.• BF: Education, physical ability.

Motivation for Productive Activity

• Habit• Physical needs (income)• Psychosocial needs• Other?

Volunteering in the U.S.

• 59 million (more than 25 percent of those age 16 and older).

• Gender: higher among women.• Employment Status: more likely to be employed.• Education Level: college graduates.• Types of Organizations: religious, education or

youth-related organizations. • Hours: about 52 hours per year.

Volunteering in the U.S.

• Age group most likely to volunteer: 35-54. • Age group least like to volunteer: 65 and older, and

those in their early 20s. • Parental status: Parents with children under 18. • Persons 65 and older: More likely to volunteer

through religious organizations.

Volunteering in the U.S. - Types of Activities

• Teaching or coaching: 24.4 percent.

• Canvassing, campaigning or fundraising: 22.9 percent.

• Collecting, making, serving or delivering goods: 22.2 percent.

• Being a board, committee or neighborhood association member: 16.3 percent.

The Bottom Line

• Theoretically, market forces determine labor supply and demand.

• Conflicting pressures influence older worker supply: substitution effect and income effect.

• Income is not the sole determinant of labor force participation (intrinsic enjoyment of work, co-worker relations, etc.).

The Bottom Line

• Older Americans remain very productive.• Paid work.• Unpaid work at home.• Unpaid work outside the home.

• Race and gender are critical contexts for looking at time allocation among elders.

• Older Americans do not have a strong record of volunteering.