| Changes in the Distribution of Long-Run Earnings and Retirement Incomes- Have Recent Cohorts Fallen |
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WP#2005-34 AbstractThis study is motivated by the well-documented increase in wage inequality during the 1980s and the continued high levels of inequality during the 1990s. Specifically, we examine changes in the distribution of long-run earnings and changes in economic mobility for recent cohorts. These cohorts, who either entered retirement in the 1990s or are nearing retirement, experienced very different labor market conditions during their working lives than did earlier cohorts. Economic growth led to higher mean earnings for recent cohorts but the distribution of yearly earnings became less equal. As a result of these changes, the average worker nearing retirement had higher long-run earnings than members of previous cohorts. This, however, need not have translated into higher long-run earnings across the board. Those at the bottom of the distribution of long-run earnings might actually have had lower accumulated earnings than previous cohorts if the gains from growth were more than offset by the increase in inequality of earnings during the 1980s. If the accumulated earnings of those at the bottom of the distribution fell, then this could have had an impact both on decisions about whether to continue to work after the period of normal retirement and on Social Security benefits. The second, and related, policy question is whether mobility has increased. If mobility has increased, then this may partially offset the impact of the increase in earnings inequality. Outcomes may be less equal, but there is less chance of being stuck with a bad outcome. Our ability to measure earnings mobility for five cohorts spanning a twenty-five-year period allows us to address this important question. For exective summary in PDF For full paper in PDF
Peter Gottschalk is a Professor of Economics in the School of Arts and Sciences at Boston College Minh Huynh is a Senior Analyst with the Social Security Administration. The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) to the Center for Retirement Research at Boston College (CRR). The opinions and conclusions are solely those of the authors and should not be construed as representing the opinions or policy of SSA or any agency of the Federal Government, the CRR, the Luxembourg Income Study, or the Brookings Institution. |