Insights Blog

What is the “retirement wealth inequality machine?”

Only a power and resource shift from capital to labor can reverse the entrenched trends of inequality.

Time’s Money Magazine features recent research led by ReLab Director Teresa Ghilarducci on the damaging effects of income shocks on retirement savings in, “Here's How Much a Job Loss Now Will Cost You by Retirement.”

Income shocks are pervasive, with 96 percent of Americans experiencing at least four in their working years. For example, a drop of 10 percent or more four times in your life can reduce retirement savings by $25,000 on average. This average is higher for low-income Americans, whereas wealthier Americans have healthy emergency funds to draw from. Ghilarducci challenges the notion that the retirement crisis is due to poor savings habits. Less privileged Americans have few options when unexpected hardship hits before retirement.

Inadequate retirement savings will force millions of older Americans to seek work at older ages.

Many who delay retirement will find work, but no study has looked at the effect on wages. ReLab's new policy brief, "Larger Birth Cohort Lowers Wages," shows that being a member of a super-sized birth cohort has depressed Boomers’ wages throughout their careers.

Labor market crowding caused by Boomers delaying retirement will continue to reduce their wages in old age relative to what would have happened had their share of the labor force declined at the same rate as prior generations.

The reduction in wages resulting from the increase in older workers provides a cautionary note to those advocating delayed retirement as a solution to the retirement savings crisis.

 Key Findings:

1. Boomers’ (born 1948 to 1964) real wages adjusted for in ation grew less than other generations. Boomers’ wages grew an average of 3.9% a year when they were young and 0.7% when they were prime-aged, compared to 5.0% and 0.9% for the Silent Generation (born 1925 to 1947) and 6.3% and 1.3% for Generation X (born 1965 to 1982).
2. Boomers are staying in the labor force longer than prior generations. Boomers’ share of the labor force has declined 27 percentage points in the three decades after the cohort reached their highest share of the labor force, whereas the Silent Generation’s share declined 31 percentage points in the three decades after their peak, and the Greatest Generation’s share declined by 46 percentage points.
3. If Boomers’ share of the labor force declined at the same rate as that of the Silent Generation, high school-educated Boomers would have earned $800 more in 2015, Boomers with some college-level education would have earned $1,500 more, and Boomers with a college degree would have earned $1,700 more.

Read more about this research in a feature story in the Chicago Tribune by Gail MarksJervis titled, "Baby Boomers, planning to work past retirement?? Here's why that idea could be a bust."

Figure 1 Source: Authors’ calculations using data from the Annual Social and Economic Supplement of the Current Population Survey (CPS ASEC), 1964- 2015. 
Note: Annual average growth in real median earnings of full-time high-school educated males. We lack data for Greatest Generation, ages 22-34. 

The GOP-controlled House voted to rollback federal regulations supporting state efforts to provide retirement accounts to uncovered workers.

On October 16, 2016, Richard Wolff of the University of Massachusetts Amherst hosted SCEPA Director Teresa Ghilarducci for “The Pension Crisis” segment of Wolff’s Economic Update.