©SHRM 2014

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 2

Module 3: Labor Markets Overview

• 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.

©SHRM 2014 3

Labor Market Theory: Supply

W¹

W²

Wⁿ

L¹ L² Lⁿ

Supply Curve: Employees

©SHRM 2014 4

Labor Market Theory: Demand

W¹

W²

Wⁿ

L¹ L² LⁿaEmployer demand curve

b

©SHRM 2014 5

Equilibrium Determined by Market

W¹

W²

Wⁿ

L¹ L² Lⁿ

Supply/Employee

Demand/Employer

©SHRM 2014 6

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.

©SHRM 2014 7

Individual Labor Supply DecisionView 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.

©SHRM 2014 8

Individual Labor Supply Decision (continued)

(Daily Decision) Work

Income

24 hoursLeisure (nonwork)

©SHRM 2014 9

Individual Labor Supply Decision (continued)

W

LS>I

I>S

Substitution effect = “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↓.

©SHRM 2014 10

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.

©SHRM 2014 11

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.

©SHRM 2014

Labor Force by Age, 2000, 2010 and Projected 2050

12

©SHRM 2014

U.S. Labor Force Participation Rates

Source: Bureau of Labor Statistics, 2013

13

©SHRM 2014 14

What Does This Mean?

• The labor force participation rate for older workers is increasing.

• Cohort differences:> Gender.> Race.

©SHRM 2014 15

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%

©SHRM 2014

Labor Force Participation Rate for Total, Men and Women, 1950-2050

16

©SHRM 2014

Labor Force by Race in 2010 and Projected 2050

17

©SHRM 2014 18

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.

©SHRM 2014 19

Productive Activity: Types by Race and Gender

• 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).

(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.

©SHRM 2014 20

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.

©SHRM 2014 21

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.

©SHRM 2014 22

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.

©SHRM 2014 23

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.).

©SHRM 2014 24

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.