(Bloomberg View) — Baby boomers can be forgiven for thinking that the world revolves around them, because the U.S. economy actually has. Until now.
As boomers left the nest and formed households in the 1970s and 1980s, they contributed first to inflation, and later to strong economic growth. In mid-life in the 1990s and 2000s, they bought stocks and houses — driving the growth of the equities market and housing prices. And now, as they retire in droves, they’re throwing U.S. economic data into Bizarro World.
Check out the broadest measures of the labor market. One looks like good news: Unemployment is 4.4%, lower than it’s been since 2007. Another looks like bad news: Wage growth has barely budged in over a year.
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Neither unemployment nor wage growth captures the emerging disparity between boomers and younger workers.
If, hypothetically, millions of older, high-earning workers retired last year, and younger, lower-paid workers received modest wage increases to assume their responsibilities, that would feel like wage growth to working Americans … but the average hourly earnings data would show a sharp drop in aggregate wage growth, because millions of boomers’ earnings would have plunged with retirement. With baby boomers retiring in large numbers for many years to come, this will be a drag on the wage-growth data well into the 2020s. The question is whether younger workers will receive those modest wage increases.
Luckily the Atlanta Fed, using observations of individuals taken a year apart, publishes data on wage growth by age. Here we see that the hypothetical is not just hypothetical.