Labor Market Rigidities and the Employment Behavior of Older Workers

48 Pages Posted: 11 Sep 2007

See all articles by David M. Blau

David M. Blau

University of North Carolina (UNC) at Chapel Hill - Department of Economics; IZA Institute of Labor Economics

Tetyana Shvydko

University of North Carolina (UNC) at Chapel Hill

Date Written: August 2007

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.

Keywords: labor demand, retirement, labor market institutions

JEL Classification: J26, J23

Suggested Citation

Blau, David M. and Shvydko, Tetyana, Labor Market Rigidities and the Employment Behavior of Older Workers (August 2007). Available at SSRN: https://ssrn.com/abstract=1012562 or http://dx.doi.org/10.2139/ssrn.1012562

David M. Blau (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Gardner Hall
Chapel Hill, NC 27599
United States
919-966-3962 (Phone)
919-966-4986 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Tetyana Shvydko

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

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