This paper examines how hours constraints affect the decision to continue working or to
leave the labor market. Charles and DeCicca (2007) consider hours constraints in the US
labor market and find that hours constrained workers’ probability to retire is about 3 to 5
percentage points higher than that for unconstrained workers. However, it is quite likely that
working hours constraints affect the retirement decision only if workers have no alternatives
to changing working hours within the labor market. Using UK data, Boheim and Taylor
(2004) take into account other adjustment possibilities, such as a job change or promotion.
They find that workers are able to adjust working hours according to preferences, but this is
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greatly facilitated through within- and between-employer job changes. Additionally, they find
that hours constraints positively affect the probability to leave the labor market.1 This paper
focuses on older workers (aged 50 and older) in particular since older workers may have less
opportunities to change jobs and can more easily exit the labor force than prime-age workers.
These transitions out of the labor market are quite important, since in general older workers
leaving the labor force are not very likely to return due to limited hiring of older workers (Gielen
and van Ours (2006), OECD (2006)). This study contributes to the literature by investigating
the effect of over-employment on older workers labor supply, looking at both the participation
decision (i.e. extensive margin) and the total number of hours worked (i.e. intensive margin). A
related study for the US by Gustman and Steinmeier (2004) has found that increasing working
hours flexibility could lead to a significant extension of older workers’ working lives, and that
the net change in effective labor supply would be smaller but is still positive.2 However, the US
labor market is quite distinct from the UK labor market in terms of labor market flexibility and
social security provisions. Furthermore, especially in the UK, the issue of flexible working hours
for older workers has received a lot of public attention, as it has been suggested as a policy
instrument to increase older workers’ labor force participation and to reduce the large drop in
labor supply due to the early retirement of the baby boom generation (e.g. EFA (2001, 2002)).
The results are used to predict to what extent working lives can be prolonged by increasing
flexibility in working hours, and how this would affect total labor supply of older workers.