Money Culture

Around 50, U.S. Workers’ Earnings Fall

Here’s a sobering thought: by the time most workers get into their 50s, their earnings are declining.

Although older workers don’t necessarily see smaller paychecks, their earnings are effectively shrinking, because they no longer keep up with inflation, according to a study charting the inflation-adjusted, or “real,” earnings of some 5 million U.S. workers over their lifetimes.

The first decade in the labor force, between ages 25 to 35, is crucial – that’s where the wage gains are concentrated, the researchers find. Real earnings plateau sometime between 35 and 45, and this plateau occurs earlier than previous research had indicated. By the time most people move into the oldest age group in the sample – 45 to 55 – their earnings are falling.

The chart below shows the percentage changes during three discrete decades in the labor force for people whose earnings are in the middle of all U.S. workers’ earnings. For the 45-55 age group, other data in the study pinpoint the earnings decline as actually beginning around 50.

Economists have been refining their analyses of lifetime earnings patterns for decades. The researchers’ methodology improves on past techniques and then applies it to an extremely robust data set: the Social Security Administration’s earnings records for U.S. workers from the 1970s through 2011.

When they looked at all workers, they found that earnings, adjusted for inflation, rise by 38 percent over a typical person’s lifetime. But these lifetime patterns vary dramatically by a worker’s income bracket.

The magnitude of increases is much greater for the highest-paid workers than economists had thought. Inflation-adjusted earnings more than triple over a lifetime for those who make it into the top 5 percent of all earners. But they don’t rise at all over the lifetime of a low-income worker with earnings at the bottom 20 percent.

Another pattern that differs by income bracket is the sudden change in income that can occur during someone’s lifetime. Negative earnings shocks for workers at the lowest earnings levels tend to be transitory, with the vast majority returning to their previous levels within 10 years – increases, on the other hand, are quite persistent. Surprisingly, the reverse is true for workers with earnings at or near the top – declines, if they occur, are very persistent and increases are transitory.

Improving our understanding of earnings changes is important, the researchers conclude, because they are “a strong determinant” of how much workers can borrow or save.

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

5 Responses to Around 50, U.S. Workers’ Earnings Fall

  1. Ken Pidcock says:

    Yet another reason to work until you’re 70. You’ll get used to a lower income.

  2. Mary says:

    This may be especially important to people with pensions benefits that are based on their highest pay over the last 3-5 years of employment. A job reclassification at that stage with a related decrease in earnings could significantly reduce their expected pension payment.

  3. Larry Littlefield says:

    Multiply this by the fact that those born after 1957 or so have had increasingly lower earnings, adjusted for the business cycle, during EACH PHASE of their lives. And the were less likely to get employer-funded retirement benefits.

    Until now, the first worse off generations have been during the period of their lives when their incomes were rising even though, in a lifetime sense, the were falling. But now they are going to find out how poor they are.

    This is what happens when you follow “Generation Greed.”

    In addition to the effect on people as individuals, think of what this will mean to consumer demand in the U.S. — and global — economy. An economy that has been dependent on Americans spending more than they earn for sales. Americans going into debt in addition to not having retirement savings. So how are they going to spend now? Take more from younger generations, who are even WORSE off?

  4. Ken Pidcock says:

    This is what happens when you follow “Generation Greed.”

    I’ve run across that phrase on multiple occasions. Am I correct in taking it to refer to people who collectively bargained for pensions?

  5. “The first decade in the labor force, between ages 25 to 35, is crucial – that’s where the wage gains are concentrated…”

    May I suggest, that we do not embark on an inequity debate here. There is a very simple rule by which companies decide whom to hire, how much to pay them, and if they want to offer raises to keep people from leaving. Maybe it is the constant ability to acquire new skills that causes these early rises in income? And maybe, just maybe, if older employees continued on that path (of constantly adding qualifications to their resume, so to speak), they would always easily out-compete all the others. It seems to me that most CEOs, CFOs, CIOs, etc. don’t come from the 25 to 35 age bracket but often from far beyond age 50. How come?