A Life Cycle Model of Labor Force Inequality

Abstract

Prevalence measures of labor force activity unambiguously demonstrate inequality across population groups (e.g., education groups), but they cannot reveal the underlying stochastic processes generating inequality. In this article, the authors develop explicit life cycle measures of inequality that summarize the divergent stochastic processes defining group differences in labor force behavior. They focus specifically on educational differences in individuals' work and retirement experiences over the latter part of the career cycle. Their analytic approach is a Markov-based multistate life table, directly extending Clogg's life table model of labor force inequality. Analyses are based on data from the National Longitudinal Survey of Older Men, 1966-1983. The authors' approach demonstrates how prevalence measures of inequality as well as measures of life cycle inequality are generated by the underlying stochastic processes. Comparisons of the life cycle measures and prevalence measures illustrate the potentially divergent pictures of labor force inequality conveyed by the alternative measures.