Monday, December 2, 2013

The true life-time profile of wages

If you look at just about any paper that considers the life-time profile of wages, you invariably find the same picture: a hump-share with wages increasing until age 50 to 55, and then a steady decrease. This decrease is every time justified with older people getting less productive and thus getting lower wages. But I have yet to see anecdotal evidence of that. Everybody I know has constantly increasing labor income. So what is wrong?

María Casanova has it figured out. You need to make the distinction between several types of people: those who continue working throughout until age 65, those who retire early, and those in the middle who take part-time jobs. The latter take significant hits on their wages as they typically change jobs, I presume to find a way to enjoy more leisure. In terms of income, this is a double whammy: wage and hours go significantly down. And this is what pull down the wage profile for the 50 to 65 year olds. Indeed, those remaining at full-time jobs actually see slight increases in labor income from increases in wages. This means that all those models that have people working full-time until retirement and use the hump-shaped age profile of wages or labor income have it all wrong.

Update: Link and title added, sorry for this negligence

1 comment:

Anonymous said...

Wow, nobody has done that before? I would have thought that low hanging fruit had been picked twenty or thirty years ago.