This paper analyzes the demand for older workers, their substitutability with younger workers, and how well the demand for older workers tracks changes in the age composition of the labor force. The main data source for the analysis is the Quarterly Workforce Indicators from 2000 to 2018, which provides earnings and employment by sector and metropolitan statistical area. The analysis also uses KLEMS national data to estimate the sector-specific price and quantity of capital and the Annual Social and Economic Supplement of the Current Population Survey to estimate educational attainment and annual hours worked by age group and sector. The paper posits a translog production function using capital and three types of labor as inputs – young workers (ages 16 to 34), mature workers (ages 35 to 54), and older workers (55 and older) – to estimate partial cross-elasticities of factor demand and factor price as measures of the substitutability between labor categories.
The paper found that:
- There is some evidence that the substitutability between older and younger workers increased over the past two decades, but the finding is not robust. One specification shows an increasing trend in the substitutability, but two alternative specifications do not.
- There is a substantial amount of sector-level heterogeneity of the trends in the substitutability between older and younger workers.
The policy implications of the findings are:
- Understanding the demand side of the labor market is a key to understanding and projecting trends in employment.
- Although our findings do not offer robust results that can be directly applied in policy making, they point to the need for future research into employer demand for older workers.