1. Workforce Planning: Aging and Employment Module 3: Labor Markets Barbara McIntosh, Ph.D., SPHR •
The development of this content was made possible through the support from a grant from the Alfred P. Sloan Foundation.

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.
This module examines labor market theory as a framework to understand labor force participation. We need to understand the fundamental forces (supply and demand) that influence an individual’s decision to work or not work.
Labor force participation is narrowly defined, and government statistics may, in some cases, be misleading. These data have been collected over time, though, and allow us to track changes and make projections.
Labor market statistics reveal that there are significant race and gender differences in time allocation. This influences subsequent behaviors discussed throughout the remaining modules.
Students are asked to read the following article for this section: 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.
Finally, it is important to recognize that paid work is not the only form of productive activity. Americans contribute to the economy in multiple unpaid environments like child rearing, caregiving, volunteering, etc. There are also significant race and gender differences in these activities.

3. Labor Market Theory: Supply
Supply Curve: Employees Wⁿ W² W¹ L¹ L² Lⁿ
The higher the wage, the more workers are willing to supply their labor for that wage. The lower the wage, the fewer workers are willing to supply their labor for that wage.
For example, Costco pays an average wage of about $21 per hour. This is better than working as a cashier in a local grocery store at the federal minimum wage of $7.25 per hour. As a result, more people are willing to supply their labor to Costco. (Walmart pays an average hourly wage of $11.83.) (O’Donnell & McElhaney, 2014)
Ask students to give examples of summer jobs that pay well in their home communities and the level of competition for those jobs.
Source: O’Donnell, J., & McElhaney, A. (2014, January 30). Costco pays more because it can. USA Today. Retrieved from

4. Labor Market Theory: DemandWⁿ W² W¹
Employer demand curve a L¹ L² b Lⁿ
The higher the wages, the fewer employees the employer will demand (point a). The lower the wages, the greater the demand for labor (point b).
The demand curve illustrates the tradeoffs. An employer cannot afford to hire an infinite number of workers at the highest wages.

5. Equilibrium Determined by Market
Supply/Employee Wⁿ W² W¹
Demand/Employer L¹ L² Lⁿ
If the market works correctly, L² is hired at W². There is only one point where both expectations are met.
Students may seek higher-paying jobs, but they will probably need to be in the labor market longer until they can find an employer willing to pay them higher wages for their skills and abilities. The critical point is to not settle for a job paying W¹ when they can find an employer willing to pay W².

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.
For older workers, these are very relevant questions, but it is important to remind students that they are thinking about this theoretically.
Choice in hours
Workers are typically not able to choose the number of hours they work because employers have policies and practices that dictate whether jobs can be split into anything less than full-time employment. In recent history, workers were required to work approximately 40 hours a week (8 hours a day for 5 days). This is changing and will be discussed in more detail later.

7. 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.
Again, it is important to remind the student that this is a theoretical discussion.
Debatable points
Individuals—particularly older individuals—work for reasons other than, or in addition to, income; for example, meeting psychosocial needs.
There is also a potential discussion about the difference between work and leisure. For some people, work—particularly unpaid work—is a form of leisure. The definitions are not clear-cut.

8. Individual Labor Supply Decision (continued)
(Daily Decision)
Work
Income
24 hours
Leisure (nonwork)
Workers maximize happiness based on the trade-off between leisure (nonwork) and income, based on the constraint that one cannot have infinite amounts of each.
Ask students to evaluate themselves in terms of their personal trade-offs between work and leisure. How does this change during exam periods? (This assumes that attending college is the student’s work=deferred income).
This discussion can be expanded by adding indifference curve analysis if the instructor is comfortable with economic theory.

9. Individual Labor Supply Decision (continued)
Substitution effect = “price” of leisure (opportunity cost)↑, leisure is relatively more expensive, work more, L↑. W
I>S
Income effect = can afford more of all goods including leisure; work less L↓.
S>I L
As wage/income (W) increases, individuals will substitute more labor for leisure. This is known as the substitution effect. The idea is that when W gets high enough, the income effect (I) takes over. One has enough income so one can afford to work less.
This means that at lower income levels (W), one cannot afford to take time off, go on vacations, etc. As income goes up, however, at some point, the individual recognizes that he or she has enough income to take more time off from work and enjoy some leisure. This is when the income effect takes over and the labor supply curve starts bending backward. In other words, the individual starts “buying” leisure.
Ask students to identify how much is enough before the income effect sets in. This will illustrate individual differences and reflect the variation found among older workers.

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.
This slide summarizes earlier points.
It is important to note that theory provides a conceptual framework to analyze behavior in simple terms, but in reality, additional factors enter into the decision to work. Income is critical, but there are opportunity costs and competing demands.
Exercise
Ask students what other factors might be important in the labor force participation decision:
Caregiving responsibilities (homemaking and the traditional role of mothers).
Placing a higher value on leisure: travel, skiing, etc.
Being with friends, social connections.
Making a contribution to society.
Satisfaction from completing a job.
From the HR perspective, it is important to recognize what employees value and what keeps them working in the organization. It is equally important to identify and capitalize on the organization’s strengths in the labor market. Is the organization known as being age-friendly? Is location important? Are wages or benefits above average?

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
The Current Population Survey (CPS) is a monthly survey of approximately 50,000 households and is conducted by the Bureau of the Census for the Bureau of Labor Statistics (BLS). The survey has been conducted for more than 50 years. The CPS is the primary information source on labor force characteristics in the U.S. The sample is selected to represent the civilian population. Respondents are interviewed about the employment status of each member of the household 15 years of age and older. Published data, though, focuses on those 16 years of age and older. The sample provides estimates for the nation and serves as part of model-based estimates for states and other geographic areas. Estimates obtained from the CPS include employment, unemployment, earnings, hours of work and other indicators. They are available by a variety of demographic characteristics, including age, sex, race, marital status and educational attainment. They are also available by occupation, industry and class of worker.
Discuss
How does this definition of the labor force influence the data? (Unemployment statistics are typically lower than reality, “under the table” or barter work is not counted, and work done by illegal immigrants is not counted.)
Exercise
Have students research the labor force statistics in your state and compare that information to national data. Ask them to look for age, gender and race differences. What are the implications overall and for the predominant industry?

12. Labor Force by Age, 2000, 2010 and Projected 2050
The 55-and-older group is expected to undergo the most sweeping changes in the years to come, primarily because of the aging of the Baby Boom cohorts. The proportion of the labor force composed of people ages 55 and older is projected to rise from 13% in 2000 to 24% by 2050.
Although the labor market share of the 45-to-54 age group increased slightly from 2000 to 2010, the share is projected to decline to 20% in After an initial drop from 26% in 2000 to 22% in 2010, the share of the 35-to-44 age group is projected to hold steady through The 25-to-34 age group is expected to maintain its share between 2000 and 2050 at 22%.
The labor market share of the 16-to-24 age group declined gradually from 16% in 2000 to 14% in It is projected that the share of this group will further decrease to 12% in The increase in school attendance of people in the 16-to-24 age group, especially 16-to-19-year-olds, is the main reason the youth labor force has been decreasing.
Source: Toossi, M. (2012). Projections of the labor force to 2050: A visual essay. Monthly Labor Review. Retrieved from

13. U.S. Labor Force Participation Rates
Source: Bureau of Labor Statistics, 2013
The evidence is clear that Americans have been extending their working lives. There are multiple reasons:
Longevity.
Healthier lives.
Realization that not enough is saved for retirement
The need for additional income.
The need for health benefits.
Enjoyment of work itself.
The need to contribute.
Enjoyment of co-workers.
These reasons are discussed in more detail in Module 4.

14. What Does This Mean?
The labor force participation rate for older workers is increasing.
Cohort differences:
Gender.
Race.
There are significant differences between cohorts, but even the labor force participation rate for those age 75 and older is expected to increase dramatically.
Gender: Women outlive men but continue to have lower labor force participation rates. Legacy?
Race: Minorities are growing as a percentage of the workforce. Will they be proportionately represented among older workers?
Exercise
Ask students to research and complete the data on black and Hispanic labor force participation. Are these groups more likely to work longer? Why or why not?
Implications for HR
It will be increasingly important to recognize and plan for age diversity in the workplace.
There are greater differences within each age cohort than between cohorts, so one plan will not fit all.
Women and men have different histories and experiences in the labor market. They also have different needs, psychologically and financially, as they face old age. Benefits programs may need to be restructured accordingly.
Racial diversity is also growing in the U.S. workforce, and HR will need to respond to different needs and expectations.

15. Labor Force Participation Rates (2014 Projected)
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+
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
31.5%
13.1%
61.9%
22.9%
7.2%
This slide illustrates the gender differences among older Americans.
There are several points to highlight:
The labor force participation rate historically increased for all groups.( Since the recession the labor force participation rate has been decreasing for younger cohorts)
There are cohort differences. People ages 55 to 64 behave differently than those ages 65 to 74 or 75 and older.
The labor force participation rate has traditionally been lower for women, but the rate of increase among those age 75 and older is higher than that of men age 75 and older.
A few of these points are highlighted in the next slide.
Note that these projections were made before the recent economic downturn, so they are probably conservative projections for these age groups.
“The 2007–2009 recession had a profound effect on the men’s participation rate. Before the start of the recession in 2006, the participation rate of men was 73.5 percent; by 2012, it had dropped 3.3 percentage points, to 70.2 percent. BLS projects that the men’s aggregate participation rate will decrease to 67.6 percent in Except for men in the 55-years-and-older age group, whose participation rate increased by a statistically significant 4.8 percentage points over the 2002–2012 timeframe, to 46.8 percent, men have seen their participation rates decline.”
Source: Toossi, M. (2013) Labor force projections to 2022: the labor force participation rate continues to fall. Monthly Labor Review, December. Washington DC: US Department of Labor, Bureau of Labor Statistics. Retrieved from

16. Labor Force Participation Rate for Total, Men and Women, 1950-2050
Source: Toossi, M. (2012). Projections of the labor force to 2050: A visual essay. Monthly Labor Review. Retrieved from
The total participation rate and the separate participation rates for both women and men reflect the changes in the age distribution of the population as well as changes in participation rates by age, gender, race and Hispanic origin.
The overall labor force participation rate has risen significantly in the past couple of decades as a consequence of the rapidly increasing participation rate of women. The overall rate peaked at 67.1% from 1997 to 2000 and then started a declining trend.
The participation rate continued to decline after the recession of 2001 and then held steady at 66.0% from 2004 to 2008, with a minor uptick to 66.2% in During the recession, the overall labor force participation rate experienced a sharp decline, falling to 65.4% by The participation rate continued to fall sharply, reaching 64.7% in 2010 and 64.1% in Therefore, the decline between 2008 and 2011 totaled 1.9 percentage points.
The overall labor force participation rate—like the rates for both men and women—is projected to continue declining, reaching 58.5% by 2050.

17. Labor Force by Race in 2010 and Projected 2050
Source: Toossi, M. (2012). Projections of the labor force to 2050: A visual essay. Monthly Labor Review. Retrieved from
The declining labor force share of white employees coincides with the faster growth of race and ethnic groups in the U.S. workforce. The upcoming retirement of the Baby Boomers, a group that has a large proportion of white men, will also lower the share of this group in the total labor force. In addition, the low fertility rate and low migration of whites relative to other race groups contributes to the declining share of this group both in the population and the labor force.
The share of the labor force composed of black employees (12%) is projected to be unchanged over the next four decades. In contrast, Asians have been one of the fastest-growing race groups, and this trend is projected to continue over the next four decades. Their share of the labor force is projected to increase from 5% in 2010 to 8% in 2050.
The share of the “all other” category—comprising those classified as being of multiple races, as well as the racial categories of American Indians and Alaska Natives and of Native Hawaiians and other Pacific Islanders—is projected to more than double, from 2% in 2010 to 5% in 2050.

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.
The next several slides introduce students to research in gerontological literature and references the assigned reading by 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.
From an HR perspective, it is important to recognize different patterns of behavior historically and different demands on aging workers by gender and race.

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.
This slide shows the results for all productive activity.
WM stands for white males, BM stands for black males, WF stands for white females, and BF stands for black females.
The initials show the gender/race groups by number of hours (in descending order) in each type of activity. When total activity is broken down, it is not surprising that men, both black and white, are more engaged in paid work.
From the HR perspective, this research shows that “women’s work is never done,” even for older women, and they are in total significantly more productive than men. Women’s multiple care-giving demands have long been documented and may require flexibility in programming if employers are interested in retaining older women.

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.
This slide reports the results of the regression analysis of the statistically significant predictors of paid work by race and gender subgroup.
WM stands for white males, BM stands for black males, WF stands for white females, and BF stands for black females.
This slide shows that in addition to age:
The significant predictors of engaging in paid work for white males ages 60 and older are income and physical ability.
For black males, there is a negative relationship with education. More highly educated black men are less likely to be engaged in paid work after the age of 60, but there is a positive relationship with assets. The more assets, the more likely black men are to be engaged in paid work.
Black women look more like the men with respect to income and physical ability.
Married white women are less likely to be engaged in paid work, but those with higher education or fewer assets are more likely to work.
Ask students to discuss the meaning of the results. Why is there a negative relationship between marital status and assets and engaging in paid work for white women? Is this a cohort effect? What are the implications for HR?

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.
This slide shows the statistically significant predictors of unpaid work at home. The initials represent the groups as defined on the previous slide.
Household size is as critical for black men as it is for women; the more people in the household, the greater the likelihood of spending time doing unpaid work at home.
Married white women are more likely to do housework.
If white men are married, they are less likely to engage in unpaid work at home.
Increasing age decreases black women’s hours doing housework.
Ask students to reflect on the differences they see in their homes. Their parents may belong to a younger cohort (this data is for persons age 60 and older).

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.
This slide shows the statistically significant predictors of unpaid work outside the home.
Those who are better educated and in better physical condition are significantly more likely than others to volunteer.
The younger the white woman, the more likely she is to volunteer.
Background resources do not explain (in a statistically significant way) black men engaging in unpaid work outside the home.
Again, ask students what this means.
This slide offers context for the discussion of volunteering as a productive activity in later slides.

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.).
Slides 24 and 25 summarize the key points made in this module.

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.