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Queiroz BL

2.2.1 Measurements
The basic measure used in the paper is labor force participation rates by age group.
Labor force participation is defined by the International Labor Organization (ILO) as
the proportion of individuals of a given age group who are either working or actively
seeking work to the total population in the same age group. Labor force participation
rate is a useful measure to study the evolution of labor force participation over time
and cross countries. The main advantage of using the labor force participation rate,
compared to other measures such as hours of work, work tenure, or retirement age,
is that it is available in all countries over an extended period of time. Based on the
labor force participation rates it is possible to estimate two important summary and
comparative measures: unused labor capacity (Gruber and Wise, 1999) and retirement
hazard rate (Costa, 1998). Both measures, explained in more detailed later, have
important limitations, but are useful to understand trends in labor force participation
over time and across countries.
Gruber and Wise (1999) propose the unused productive capacity as a summary
measure of the labor force participation of older workers. The measure is calculated
by summing up the proportions of individuals out of the labor force between ages 50
and 69 and dividing it by 19 (Similar calculation is made for those between ages 55
and 65, but dividing by 10). The measure is interpreted as follows: Supposing that the
unused capacity measure between ages 50 and 69 in a particular year is 50%, it means
that a cohort experiencing the labor force participation rates in that year throughout
their whole life would work only 50% of their potential lifetime person-working-years
(Gruber and Wise, 1999). It is a relative measure, in that it does not consider the fact
that everybody in this age range should not be in the labor force and that differences in
labor force participation might be related to health conditions and type of jobs at older
ages. In the case of developing economies with high unemployment and large informal
sectors, it is not correct to assume that all retirees or individuals out of the labor force
would be productive whether they remain in the labor force. Thus, this makes the
notion of unused labor capacity more complicated in Latin America in comparison
to countries included in Gruber and Wise (1999), who mainly focused on developed
countries.
The retirement hazard rate is defined as the transition out of the labor force (Costa,
1998). It is calculated by comparing the labor force participation in a given age group
compared to its previous (younger) age group. The hazard rate can be thought of as
an estimate of the probability of leaving the labor force at a given age, conditional on
being in the labor force in the previous year. It can be calculated in a cross-section
manner or following a synthetic cohort approach, in case when no panel data are
available. The hazard rates do not show the actual retirement experience of individuals.
In this paper, it is the percentage decline in the proportion who are economically active
between age x and age x + 1.
Table 1 shows the dependent and independent variables that are included in the
model, data sources, and time periods. The model uses GDP per capita as an indicator
of economic well-being and economic development. Economically, a higher national
income should be related to a lower labor force participation of the older adults
because income effects are higher than substitution effects and because higher income
levels might indicate that individuals can afford leaving the workforce (Ehrenberg and
Smith, 2016). The increasing income level makes it possible for more and more older
people to leave the labor force. However, the national income growth is also related
to a higher wage potential and higher opportunity costs to leave work. In addition, a
higher level of GDP per capita could also be correlated to better health and skills in
more advanced ages, which might be related to more work capacity. In other words,
a higher level of GDP per capita might be related to increases in labor force at older
ages. Thus, it is possible to observe a shift in the trends in more recent years.
Education is an important determinant of labor supply and retirement (Clark, Young,
and Anker, 1999). Education is highly correlated with income, wealth, and type of a
job an individual holds. The net effect of education will reflect income and substitution

International Journal of Population Studies 2017, Volume 3, Issue 1 125