Tuesday, May 9, 2017

Young Adulthood and Income Stagnation

The latest massive, long-term study of income in America has some interesting conclusions. For one thing they find that men born in 1942 had the highest median lifetime earnings of any American cohort. Women have done better more recently, but as with other studies this one finds that median family income peaked in 1999 and has declined since.

I was more interested in another discovery: all you need to know to estimate how much a cohort will earn over the course of their lifetimes is how much they earned at 27. Every generation since 1934 when their data starts has followed about the same pattern of earnings across the life cycle. So they reason that we can predict future economic performance from the earnings of current 27-year-olds. Which is pretty grim, because right now 27-year-old men earn 31% less than they did in 1969.

As my regular readers know I think all the time about the troubles young Americans have getting into adult careers. This data seems to show that those troubles reflect, not just a lengthening period of "youth" outside the structures of adult life, but a profound shift in the whole socio-economic structure.

Fatih Guvenen, one of the study's leaders, thinks that maybe we should look at what people are doing before they enter the work force:
The implication, Guvenen argues, is that economists should search for explanations for households’ current financial woes in the youth and childhood of today’s workers.

“We are maybe looking at the wrong place for the solution to stagnation in wages and rising inequalities,” Guvenen said. “To understand higher inequality, we should turn and take a closer look at youth.”

It remains to be seen whether the situation will improve in the future for younger workers today, but their prospects seem dim. Young workers’ incomes are still declining today, suggesting that their trajectories over the rest of their careers will be lower as well.
I am not sure what those changes would be – less work experience, more time in school? – and anyway I don't think Guvenen is right. I think the issue is that the economy simply doesn't have much need for the average worker at 27 or any other age, so of course this causes wages to decline.

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