Changes in the Distribution of Long-Run Earnings and Retirement Incomes - Have Recent Cohorts Fallen Behind?

25 Pages Posted: 22 Jun 2008

See all articles by Peter Gottschalk

Peter Gottschalk

Boston College; IZA Institute of Labor Economics

Minh Huynh

U.S. Social Security Administration

Date Written: January 2005

Abstract

This 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.

Suggested Citation

Gottschalk, Peter and Huynh, Minh, Changes in the Distribution of Long-Run Earnings and Retirement Incomes - Have Recent Cohorts Fallen Behind? (January 2005). Available at SSRN: https://ssrn.com/abstract=1148860 or http://dx.doi.org/10.2139/ssrn.1148860

Peter Gottschalk (Contact Author)

Boston College ( email )

Chestnut Hill, MA 02167
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Minh Huynh

U.S. Social Security Administration ( email )

Washington, DC 20254
United States