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Labor Market Rigidities and the Employment Behavior of Older Workers

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Author Info
Tetyana Shvydko
David Blau

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Abstract

The labor market is often asserted to be characterized by rigidities that make it difficult for older workers to carry out their desired trajectory from work to retirement. An important source of rigidity is restrictions on hours of work imposed by firms that use team production or face high fixed costs of employment. Such rigidities are difficult to measure directly. We develop a model of the labor market in which technological rigidity affects the age structure of a firm’s work force in equilibrium. Firms using relatively flexible technology care only about total hours of labor input, but not hours of work per worker. Older workers with a desire for short or flexible hours of work are attracted to such firms. Firms using a more rigid technology involving team production impose a minimum hours constraint, and as a result tend to have a younger age structure. A testable hypothesis of the model is that the hazard of separation of older workers is lower in firms with an older age structure. We use matched worker-firm data to test this hypothesis, and find support for it. Specification tests and alternative proxies for labor market rigidity support our interpretation of the effect of firm age structure on the separation propensity These results provide indirect but suggestive evidence of the importance of labor market rigidities.

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File URL: http://www.ces.census.gov/index.php/ces/cespapers?down_key=101794
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File Function: First version, 2007
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Publisher Info
Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 07-21.

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Length: 47 pages
Date of creation: Jul 2007
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Handle: RePEc:cen:wpaper:07-21

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  1. John Rust & Christopher Phelan, 1997. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Econometrica, Econometric Society, vol. 65(4), pages 781-832, July.
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  2. Coles, Melvyn G. & Treble, John G., 1996. "Calculating the price of worker reliability," Labour Economics, Elsevier, vol. 3(2), pages 169-188, September. [Downloadable!] (restricted)
  3. Robert Hutchens, 1988. "Do job opportunities decline with age?," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 42(1), pages 89-99, October.
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  6. Frank A. Scott & John Garen & Mark Berger, 1995. "Do health insurance and pension costs reduce the job opportunities of older workers?," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 48(4), pages 775-791, July.
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  8. Michael D. Hurd, 1993. "The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers," NBER Working Papers 4462, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Robert M. Hutchens & Karen Grace-Martin, 2006. "Employer willingness to permit phased retirement: Why are some more willing than others?," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 59(4), pages 525-546, July. [Downloadable!] (restricted)
  12. Leora Friedberg, 2000. "The Labor Supply Effects of the Social Security Earnings Test," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 48-63, February. [Downloadable!] (restricted)
  13. Bartel, Ann P & Sicherman, Nachum, 1993. "Technological Change and Retirement Decisions of Older Workers," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 162-83, January. [Downloadable!] (restricted)
  14. Burtless, Gary & Moffitt, Robert A, 1985. "The Joint Choice of Retirement Age and Postretirement Hours of Work," Journal of Labor Economics, University of Chicago Press, vol. 3(2), pages 209-36, April. [Downloadable!] (restricted)
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  17. Jonathan S. Leonard & David I. Levine, 2006. "Effect of diversity on turnover: A large case study," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 59(4), pages 547-572, July. [Downloadable!] (restricted)
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  19. John J. Abowd & John Haltiwanger & Julia Lane, 2004. "Integrated Longitudinal Employer-Employee Data for the United States," American Economic Review, American Economic Association, vol. 94(2), pages 224-229, May. [Downloadable!]
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  20. Hellerstein, Judith K & Neumark, David & Troske, Kenneth R, 1999. "Wages, Productivity, and Worker Characteristics: Evidence from Plant-Level Production Functions and Wage Equations," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 409-46, July. [Downloadable!] (restricted)
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  21. John Abowd & Bryce Stephens & Lars Vilhuber, 2006. "The LEHD Infrastructure Files and the Creation of the Quarterly Workforce Indicators," Technical Papers 2006-01, Longitudinal Employer-Household Dynamics, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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