Earnings inequality over the work career.

Abstract

One common finding in analyses of inequality is that older workers exhibit higher levels of inequality than younger workers (excluding very young workers). The common assumption has been that this is an "aging", or more specifically, experience, effect, but this has rarely been investigated. In terms of a substantive explanation of such an aging effect, only the human capital perspective presents an explicit theory of why earnings inequality increases with age. This perspective is reviewed and criticized and an alternative perspective, based on a structural approach, is presented. A "restricted cohort analysis" is undertaken with the use of PSID data on earnings and wages from the early 1970s and early 1980s. The analysis generally supports the notion that as cohorts age over the work career earnings dispersion increases, although period and cohort effects may also be present. Within-cohort inequality was decomposed using broad occupational classes, with the results showing that age differences are partly due to increasing earnings/wage differentials between occupations. Discussion centers around implications of these findings for future research on income and earnings inequality/determination and the impact of aging on these economic processes.