Older workers are increasingly choosing to stay in the labor force and postpone retirement. Some even stay into their 80s, 90s, and 100s. In 1999, there were 3.9 million workers aged 65 and over. Surveys show that people intend to work longer than their parents. Among baby boomers, one study found that 80 percent expect to work during retirement: 35 percent for interest/enjoyment; 23 percent primarily for income; 17 percent to start a business; and 5 percent to try a different field of work.

Similarly, the current increase in labor force participation primarily reflects an enjoyment of work and a desire to stay actively involved. The need to earn money ranks second. The trend toward longer working lives has been made possible by the tight labor market. Employers have had to raise wages, and offer benefits, training, and even signing bonuses to post-retirement workers. In return, employers get workers who frequently have desirable characteristics such as loyalty, commitment to quality, good performance, and an ability to get along with co-workers.

(Updated October 1, 2000)

1. Employers have been willing to pay higher wages and benefits to attract post-retirement workers.
a) What is the substitution effect? How has it affected the participation of older workers as the wage has risen?
b) What is the income effect? What effect has it had?
c) Which of the two effects has been dominant according to the news story?

2. Draw a supply of labor curve on a diagram with axes representing the wage rate and the number of post-retirement workers employed. Show the effect of:
a) an increase in the wage rate
b) opportunities for training
c) a greater enjoyment of work