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Labor Market Rigidities and the Employment Behavior of Older Workers

Author

Listed:
  • Blau, David M.

    (Ohio State University)

  • Shvydko, Tetyana

    (University of North Carolina, Chapel Hill)

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.

Suggested Citation

  • Blau, David M. & Shvydko, Tetyana, 2007. "Labor Market Rigidities and the Employment Behavior of Older Workers," IZA Discussion Papers 2996, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp2996
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    References listed on IDEAS

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    Cited by:

    1. Richard Rogerson & Johanna Wallenius, 2018. "Household Time Use Among Older Couples: Evidence and Implications for Labor Supply," 2018 Meeting Papers 90, Society for Economic Dynamics.
    2. Blake, Hélène & Sangnier, Marc, 2011. "Senior activity rate, retirement incentives, and labor relations," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 5, pages 1-32.
    3. Raquel Fonseca & Simon Lord & Simon C. Parker, 2020. "Self-Employment at Older Ages in Canada," Cahiers de recherche / Working Papers 2003, Chaire de recherche sur les enjeux économiques intergénérationnels / Research Chair in Intergenerational Economics.
    4. Boockmann, Bernhard & Fries, Jan & Göbel, Christian, 2018. "Specific measures for older employees and late career employment," The Journal of the Economics of Ageing, Elsevier, vol. 12(C), pages 159-174.
    5. Tobias Laun & Johanna Wallenius, 2016. "Social Insurance and Retirement: A Cross-Country Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 22, pages 72-92, October.
    6. Nicole Maestas & Kathleen Mullen & David Powell, 2013. "The Effect of Local Labor Demand Conditions on the Labor Supply Outcomes of Older Americans," Discussion Papers 13-014, Stanford Institute for Economic Policy Research.
    7. C Machado & Miguel Portela, 2014. "Hours of work and retirement behaviour," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-22, December.
    8. Etienne Lalé, 2018. "Turbulence and the employment experience of older workers," Quantitative Economics, Econometric Society, vol. 9(2), pages 735-784, July.
    9. Blundell, R. & French, E. & Tetlow, G., 2016. "Retirement Incentives and Labor Supply," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 457-566, Elsevier.
    10. Richard Rogerson & Johanna Wallenius, 2019. "Household Time Use among Older Couples: Evidence and Implications for Labor Supply Parameters," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 1079-1120.
    11. Rowena A Pecchenino & Julie Byrne, 2017. "Heigh Ho, Heigh Ho:The Way We (Would Like to) Work Now," Economics Department Working Paper Series n282-17.pdf, Department of Economics, National University of Ireland - Maynooth.
    12. Richard Rogerson & Johanna Wallenius, 2009. "Retirement in a Life Cycle Model of Labor Supply with Home Production," Working Papers wp205, University of Michigan, Michigan Retirement Research Center.
    13. Peng, Fei & Anwar, Sajid & Kang, Lili, 2017. "New technology and old institutions: An empirical analysis of the skill-biased demand for older workers in Europe," Economic Modelling, Elsevier, vol. 64(C), pages 1-19.
    14. James Carlopio & Michael Harvey & Timothy Kiessling, 2012. "A key to prosperity in hypercompetitive markets: organizational “hyperflexibility”," Tržište/Market, Faculty of Economics and Business, University of Zagreb, vol. 24(2), pages 189-200.
    15. Maciej Albinowski & Joanna Franaszek, 2024. "Minimum Hours Constraints: The Role of Organizational Culture," IBS Working Papers 01/2024, Instytut Badan Strukturalnych.
    16. Albinowski, Maciej, 2024. "Part-time employment opportunities and labour supply of older workers," The Journal of the Economics of Ageing, Elsevier, vol. 28(C).
    17. Julie Byrne & Rowena A. Pecchenino, 2019. "Heigh Ho, Heigh Ho: flexible labor contracts with real option characteristics," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 54(1), pages 25-34, January.
    18. Rogerson, Richard & Wallenius, Johanna, 2016. "Retirement, home production and labor supply elasticities," Journal of Monetary Economics, Elsevier, vol. 78(C), pages 23-34.
    19. Elisabetta Magnani, 2012. "Vertical disintegration and training: evidence from a matched employer–employee survey," Journal of Productivity Analysis, Springer, vol. 38(2), pages 199-217, October.
    20. Elisabetta Magnani, 2012. "Older Workers' Training Opportunities in Times of Workplace Innovation," Working Papers 201205, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.

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    More about this item

    Keywords

    labor demand; labor market institutions; retirement;
    All these keywords.

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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