Labor Market Rigidities and the Employment Behavior of Older Workers

Abstract

It is often asserted that the labor market is characterized by rigidities that make it difficult for older workers to carry out their desired trajectory from work to retirement. One potentially important source of rigidity is the restrictions on hours of work imposed by firms, but such rigidities are difficult to measure directly. The authors explore two variables that may serve as proxies for flexibility in hours at the employer level: the shares of older workers and young women in the employer's work force. The authors use matched worker-firm data from the Survey of Income and Program Participation and the Longitudinal Employer Household Dynamics study for the period 1990–2004 to analyze the effects of these variables on the job separation propensity of workers aged 45–69. Results indicate that older workers employed in firms with greater shares of older workers and young female workers have a lower propensity for job separation. These findings provide indirect but suggestive evidence of the importance of labor market rigidities in shaping employment decisions of older workers.