Changes in labor demand and the employment of older men.

Abstract

This study analyzes two different demand-related explanations for the decline in the labor force participation rates of older men in the 1970s. One is that the entry of the baby boom into the labor force in the 1970s reduced the demand for older workers. The second is that the decline in real wages for less-skilled workers that began in the 1970s resulted in the withdrawal of older men from the labor force. To analyze the impact of the baby boom on the employment of older workers, we use a production function approach. This allows us to relate the change in the number of younger workers due to the baby boom to changes in the marginal product of older workers. Our estimates are calculated using data from the March Current Population Survey. Our production function model indicates that the entry of the baby boom into the labor force did have a negative impact on the marginal product of older men. However, the effect is small. The entry of the baby boom explains less than thirty percent of the excess decline over trend in the labor force participation rates of older men in the 1970s. We next investigate whether the large declines in the labor force participation rates of older men in the 1970s can be explained by changes in the wage distribution. We decompose the aggregate participation rate into changes in the wage distribution (shifts in the demand curve) and changes in the participation rate at each wage level (shifts in the supply curve). The data for this decomposition are taken from the March Current Population Survey. We find that shifts in the wage distribution explain relatively little of the decline in the employment rate of older men. We conclude, based on the results of our two very different approaches, that demand changes were not significant factors in the labor force participation rate declines of older men in the 1970s.