A Unit Record Analysis of Older Male Labour Force Participation

This paper presents empirical analyses of econometric models of older males’ labour force participation based upon the orthodox theory of labour supply. The aim is to assess the effectiveness of using of micro data to account for older male labour force participation rate patterns over recent decades. As such, the influence of financial variables from the budget constraint and observable characteristics from the utility function are incorporated into reduced form models estimating the older male’s expected retirement age and the probability of an older male’s labour force participation using unit record data. The research findings presented emphasise the role of human capital and potential market wages for an older individual’s labour force participation. In contrast, the coefficients attached to observable characteristics variables, representing tastes and preferences for work and leisure, were rarely statistically significant or of a consistent sign across age groups or time periods, meaning that that unobservable tastes may dominate the labour force participation decision. A major finding was that higher wage earners were more likely to anticipate an earlier exit than lower earners. This shows that expectations do not necessarily match actual labour force participation behaviour, and that lower wage earners may be more vulnerable to unanticipated labour force exit. Finally, micro-based findings were not adequately translated to the macro level, being unable to directly offer inferences for aggregate changes in older male labour force participation rates over time. This problem of aggregation results in a fallacy of composition in reasoning, meaning that the micro models presented have only limited use for explaining older male labour force participation rate patterns over recent decades.