Who Rules Wage Growth?

By Lecia Parks Langston, Senior Economist

“Old age and treachery will always beat youth and exuberance.” –David Mamet

You might be surprised — older Utahns are working longer and earning more

Baby boomers may be the longest-working generation in more than half a century. For whatever reason, many baby boomers consistently report that they plan on working past their 60s. And, they seem to be sticking to that plan and making more in wages than their predecessors did to boot.

The baby-boom generation is certainly the defining demographic feature of our age. This large cohort born after World War II (between 1946 and 1964) represents the “pig in the python” of modern population figures. The first baby boomers turned 65 in 2011 and many appear to be working past that age. However, the trend for longer labor force participation and higher earnings started years before baby boomers started reaching retirement age. In a recent U.S. Census Bureau webinar “Older People Working Longer, Earning More,” James Spletzer outlined this national trend. But, what about the Beehive State with her unusually young demographics? Are older Utahns following the national pack? They are indeed.

Youngest in the Nation, but Still Aging

With almost 30 percent of its population under the age of 18 and just 11 percent 65 years and older, Utah is definitely the youngest state in the nation. But, as elsewhere, Utah’s senior population is expected to expand in the upcoming decades. Population estimates from the Kem C. Gardner Policy Institute suggest that by 2065, one in five Utahns will be 65 years or older.

Not only is Utah’s population aging, that older population is working longer and earning better wages — just like other Americans. In fact, during the past two decades, workers 65 years and older experienced the most rapid Utah wage growth of any age group. Coupled with this wage growth was a steady increase in their employment rate.

Working Longer

The employment rate measures the percentage of a particular group that is employed. The Current Population Survey (CPS) reveals that in 2002 only 15 percent of the population 65 years and older was working for pay. By 2017, with a few ups and downs in between, that rate had increased to 21 percent. That’s somewhat higher than the U.S. figure of 19 percent.

The CPS discloses that not only are older Utah workers staying in the labor force, but working seniors are making up an increasing share of the labor force. Between 2002 and 2017, the number of senior workers increased from 30,000 to 71,000. That represents a gain of nearly 23,000 individuals and a growth rate of 76 percent. Those 65 years and older currently account for nearly 15 percent of the labor force compared to 10 percent in 2000.

Participation up Since the 1980s

Since the first baby boomers turned 65 in 2011, they account for part of that change. However the trend preceded that date by more than two decades. In general, U.S. older workers’ participation in the labor force steadily declined from 1948 (about 30 percent) until about the mid-1980s when it bottomed out at less than 11 percent. Obviously, the Social Security program provided the safety net to allow older workers to retire earlier. However, since the mid-1980s, older workers have stayed in the workforce at a higher and higher rate. The rate of growth in the older-worker participation rate really took off in the late 1990s.

Now, one’s sixty-fifth birthday is not a job death knell for a significant portion of the population. Interestingly, as older workers have stayed in the labor market longer, teenagers have failed to join at the rates of previous years. (See our previous blog post: “Where Have All the Young Workers Gone?") An examination of wage growth for these two groups may suggest a reason for both phenomena.

Wage Growth for Seniors Outpaces Other Age Groups

The U.S. Census Bureau’s Local Employment Dynamics (LED) program provides the best average earnings data by age group. Using averages for stable jobs (those employed at least through a full calendar quarter) eliminates most temporary assignments, which may dilute overall wages. This data is available for Utah beginning in 2000.

On the surface, all age groups experienced gains in average wages in the years for which LED data is available — 2000 to 2017. However, after adjusting wages for inflation using the Consumer Price Index for All Urban Consumers (CPI-U), it becomes apparent that workers between the ages of 14 and 18 years old actually lost significant buying power over the time period. They weren’t alone. Inflation-adjusted average wages declined for every cohort under 35 years old.

Indexing these inflation-adjusted wages to the initial 2000 figure shows this pattern far more starkly and allows for the easy calculation of percent gains (see the top chart in the dashboard visualization). This chart shows the 65-years-and-older group definitively won the wage growth race. Between 2000 and 2017, the average monthly wage of workers 65 years and older grew by an incredible 45 percent. The next closest contending age group was 55- to 64-year-olds with a 10 percent gain. As wages increase for those 65 years and older, the incentive to stay working and earning also increases. It should be noted that an increase in hours worked may be partially responsible for the staggering increase.

Although 14- to 18-year-olds saw a slight bump up in wages during the pre-recession boom, by 2017, their inflation-adjusted wage had dropped by nearly 20 percent from 2000. That’s actually up from a near 30-percent drop as of 2013. Perhaps it is no wonder that young workers are less interested in entering the labor force as their labor now buys less and less.

Why are Seniors Working Longer?

Reforms in Social Security and the declining availability of defined-benefit pension plans undoubtedly play a role in the longer work life of seniors. Today’s older workers may not be as financially secure as those who came before. In addition, improving health allows older workers to stay working longer, and improving education rates (better-educated workers tend to be healthier and employed in less physically-taxing white-collar jobs) may factor into the picture. Better-educated workers also make higher wages than their less-educated peers, which may be contributing to the higher wage rates. Finally, the opportunity cost of losing those higher wages may entice older workers to keep their employment.