Workforce Planning: Aging and Employment
Module 3: Labor Markets
Barbara McIntosh, Ph.D., SPHR • 2014
The development of this content was made possible through the support from a grant from the Alfred P. Sloan Foundation.
©SHRM 2014
Module 3: Labor Markets Overview
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Labor market theory.
Labor force measurement.
Labor force participation rates (LFPR) and age.
Labor markets; race and gender considerations.
Labor market alternatives; productive activity in other
venues compared to paid work.
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Labor Market Theory: Supply
Supply Curve: Employees
Wⁿ
W²
W¹
L¹
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L²
Lⁿ
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Labor Market Theory: Demand
Wⁿ
W²
W¹
Employer demand curve
a
L¹
L²
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b
Lⁿ
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Equilibrium Determined by Market
Supply/Employee
Wⁿ
W²
W¹
L¹
L²
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Lⁿ
Demand/Employer
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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?
In theory, these are independent questions, and they assume
workers can really choose.
In reality, the outcome—once demand enters in—makes
these questions interdependent.
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Individual Labor Supply Decision
View workers as consumers
• Labor supply is derived supply. Individuals work because
they need income.
• Except for the need for income, individuals would rather
not work.
Decide how much employees will work by recognizing that
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.
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Individual Labor Supply Decision (continued)
Income
(Daily Decision)
Work
24 hours
Leisure (nonwork)
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Individual Labor Supply Decision (continued)
Substitution effect = “price” of
leisure (opportunity cost)↑, leisure
is relatively more expensive, work
more, L↑.
W
I>S
S>I
L
Income effect = can afford
more of all goods including
leisure; work less L↓.
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Actual Labor Supply
• Individuals generally do not have control over hours,
certainly not on a daily basis.
• There is more emphasis today on flexibility as a mechanism
to recruit and retain older workers. Historically, 8-hour days,
50 weeks per year, were the norm.
• Income is not the sole determinant of labor supply. Social,
psychological and intrinsic work rewards are important,
particularly for older workers.
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Labor Force Measurement and
Data Collection
Population vs. civilian labor force
• Current population survey (CPS) 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 (those individuals who are able and
willing but unable to find work so they are no longer
trying).
* The description of the CPS data and statistics can be found at
www.census.gov/cps.
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Labor Force by Age, 2000, 2010
and Projected 2050
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U.S. Labor Force Participation Rates
Source: Bureau of Labor Statistics, 2013
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What Does This Mean?
• The labor force participation rate for older workers is
increasing.
• Cohort differences:
> Gender.
> Race.
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Labor Force Participation Rates by Gender
1994, 2004 and Projected 2014
Labor Force Participation Rates (2014 Projected)
Men
Women
55 to 64
65 to 74
75+
55 to 64
65 to 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%
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Labor Force Participation Rate for Total, Men
and Women, 1950-2050
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Labor Force by Race in 2010 and Projected 2050
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LFPR in Context: Productive Activity Domains
There are multiple alternatives regarding time use; it is still
productive activity.
Domains:
• Paid work.
• Unpaid work at home.
• Unpaid work outside home.
Source: Danigelis, N. L., & McIntosh, B. R. (1993). Resources and the productive activity of elders: Race and
gender as contexts. Journal of Gerontology: Social Sciences, 48, 4, S192-S203.
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Productive Activity: Types by Race and
Gender
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For workers age 60 and older across all domains:
> Working women are most productive (1,607 hours).
> Working men are least productive (1,140 hours).
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(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.
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Productive Activity: Resource Predictors—Paid
Work
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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.
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Productive Activity: Resource Predictors—
Unpaid Work at Home
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WM: Being married, physical ability.
BM: Household size.
WF: Household size, physical ability, being married.
BF: Household size, physical ability, age.
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Productive Activity: Resource Predictors—
Unpaid Outside the Home
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WM: Education, physical ability.
BM: No significant predictors.
WF: Education, physical ability, age.
BF: Education, physical ability.
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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 only determinant of labor force
participation (intrinsic enjoyment of work, co-worker
relations, etc.).
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The Bottom Line (continued)
• Older Americans remain productive:
• Paid work.
• Unpaid work at home.
• Unpaid work outside the home.
• It is important to look at race and gender when considering
time allocation among elders.
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