U.S. Outlook: Is The Aging Workforce Curbing Wage Growth?
One of the most perplexing questions in macroeconomics today is why a tight U.S. labor market has not resulted in faster wage growth. The U.S. economy has created more than 22 million jobs since February 2010 when nonfarm payrolls bottomed out. Meanwhile, the unemployment rate has steadily declined from 10.0% in October 2010 to 3.6% currently. Despite the tight labor market, wage growth remains fairly weak. Indeed, average wage growth during the current expansion has trailed the two prior expansions even though the unemployment rate is lower.
We looked at wage growth by age groups to understand whether an aging workforce might be playing a role. Wages for older workers grew a whopping 10.4 percentage points faster in 1991 than in the current expansion. In addition, wage growth is generally slower for older workers than for younger workers. In the current expansion, the younger age group has seen median weekly wage growth 4.4 percentage points higher than the 55+ age group. So, an aging workforce could indeed be a factor holding back overall wage gains today.
Total employment among older workers reached a low of 11.9% in December 1993 and has been steadily increasing for the past 26 years as the U.S. population ages. As of September 2019, people aged 55+ comprise nearly a quarter (23.8%) of total employment, a record high and more than 10 percentage points higher than at the end of the 1991 expansion. Weaker wage growth among workers who are 55+ and the fact that the group constitutes a far larger share of total employment both suggest an aging workforce could be one of the reasons wage growth has been so weak in this expansion.The Peril of Lower Productivity
There are clearly other factors are at play, such as weaker productivity growth. Over the long run, increases in real wages reflect increases in labor productivity growth. Annual productivity growth in the current expansion has been about half the pace of the 1991 expansion, averaging 1.3% a year compared with 2.2% a year during the 1991 expansion. Low productivity growth is likely a very important factor in explaining the lackluster wage growth we are seeing today.
The hunt continues. Recent research by the Federal Reserve Bank of San Francisco argues that the IT revolution contributed to a rise in U.S. market concentration that discourages innovation and may be stifling U.S. productivity and wage growth. For now, the reasons for lackluster wage growth in this expansion are still being debated by macroeconomists and remain a mystery.