Much has been written about the aging of the U.S. population, but the importance of this trend for the economy and its evolution can easily be overlooked. This week, we focus on the aging of the labor force and explore its implications for the behavior of real wage growth. In this first post, we examine estimated real wage profiles of workers and document how their levels and growth rates differ across demographic characteristics such as sex, race/ethnicity, education level, and age. Moreover, we argue that the demographic trends predict a slower pace of real wage growth for an increasing fraction of the workforce. Our second post combines the implied real wage growth rates and changing demographics of the U.S. labor force to derive a “cyclically neutral” aggregate real wage growth series. We show that this series has been steadily declining since the mid-1980s.
To investigate real wage growth patterns, we look at the hourly wage rates of all employed individuals aged sixteen or older in the Current Population Survey (CPS). We use both the CPS Outgoing Rotation Group samples, which provide monthly data from January 1982 through May 2016, and the May Extracts, which provide annual data from 1969 through 1981. Combining these two data sources gives us 12.7 million total observations on individuals, their employment status, and their nominal hourly earnings (if employed). In cases where actual hourly wages are missing, we infer the implied hourly wage using the individuals’ reported “usual” weekly earnings and actual number of hours worked per week. We use the CPI to convert nominal hourly wages to real hourly wages in first-quarter 2014 dollars.
05/19/2024