9  Labour Force Participation

This section analyses the labour force participation patterns of older people. What are the factors associated with continuing in the workforce on a full- or part-time basis as distinct from retirement? In particular we are interested in the extent to which a respondent's health status influences the decision to remain in the workforce.

9.1  Overview of the probabilities of being in the labour force

The initial analysis presents the results of a simple model relating the probability of working to age. Formally the logit model is of the form:

Pr(W) = α + β(age) + ε (12)

Figure 12 provides a snapshot of the probabilities that an individual of a given age will be in full- or part-time work. Recall from Section 3.5 that those not in the workforce are classified as retired (with the exception of a small residual for whom the data was incomplete). The figure plots the predicted probabilities derived by regressing full- or part-time participation solely on age and an indicator as to being age 65 or over (no other variables were involved), with all points lying on the continuous line joining them. The actual probabilities for each age group are shown and imply an over- or underestimate of the probability of working, based on age alone.

Figure 12: Unconditional probabilities of working full- or part-time: by age and sex

Source:  Health, Work and Retirement Survey

For males, the probability of participation in full-time work falls with increasing age. Despite the predictable drop at age 65 (given eligibility for NZS), almost 20% of males remain in full-time employment at the age of 70. In contrast, part-time work by males rises with increasing age, with only a slight fall at age 65. Even so, by age 66, more than 40% of all males remain in full-time or part-time work. Clearly, while eligibility for NZS has a notable impact, a significant share still participates in the labour force after age 65.

The underlying pattern for females is broadly similar. The principal difference is in the absolute levels. The probability of being in part-time work is higher than for males, up to age 65. The corollary is that full-time rates for females are some 20 percentage points lower up to age 65, but they show the same downward trend as was the case for males.

Smeaton and McKay (2003) report a similar deterrent effect on labour force participation of the British state pension. They find a drop in participation of some 10 percentage points once an individual reaches the age of eligibility. This contrasts with a drop in the New Zealand participation rates at age 65 of more than twice that amount. This reflects the more generous level and universal eligibility for NZS compared to the British state pension.

Many factors other than age contribute to the decision to remain in the workforce. Critical amongst these is health. Table 9-1 summarises the population estimates of labour force status by self-reported health status.[25] There is a very marked decline in labour force participation for both males and females in the poorer health categories. While 82% of all males aged 55 to 70 reporting excellent health are working (either in full-time, part-time or seeking employment), only 53% in fair health and 28% in poor health remain working. A striking finding is that while only 28% of males who state they are in poor health are working, 45% of females in poor health are reported as working. This could arise as a result of different expectations about health and working being applied by males and females, or by males having a greater preponderance of conditions that result in both a self-rating of poor health and preclude labour force participation.