Posted by: coastcontact | December 10, 2016

Barely Half of 30-Year-Olds Earn More Than Their Parents

Sorry, Young People: You Probably Won’t Make as Much Your Parents Did

As wages stagnate in the middle class, it becomes hard to reverse this trend

From a report in the Wall Street Journal dated December 8, 2016.   Barely half of 30-year-olds earn more than their parents did at a similar age, a research team found, an enormous decline from the early 1970s when the incomes of nearly all offspring outpaced their parents. Even rapid economic growth won’t do much to reverse the trend.


Wage stagnation has taken heavy toll since 1970s

“My parents thought that one thing about America is that their kids could do better than they were able to do,” said Raj Chetty, a prominent Stanford University economist who emigrated from India at age 9 and is part of the research team. “That was important in my parents’ decision to come here.”

What’s more, even if President-elect Donald Trump fulfills his promises of rapid economic growth, the trend won’t be reversed significantly. Even if income levels grew 3.8%, the percentage of 30-year-olds who out-earn their parents would bump up to just 62%, the Wall Street Journal reports.

The study was conducted by economists and sociologists at Stanford, Harvard and the University of California. They used tax and census data to compare the earnings of 30-year-olds starting in 1970 to that of their parents.

What the report does not do is explain why wages are stagnant. I will give you my take on this horrible reality. I did earn more than my parents but only because of inflation.

When I married in 1969 my salary was $10,000 per year. According to the United States bureau of Labor Statistics your income today, based upon the CPI Inflation Calculator, that salary equates to $65,866.  My father never earned that inflation adjusted salary.

There have been many reasons for the stagnant salaries.  Three come to mind almost immediately. 

First management earned ten to twenty times the average income of most employees in the earlier parts of the 20th century.  Today management earns 200 to 300 times the average income of most employees.

Second many jobs have been outsourced other countries.  That has resulted in more potential employees seeking the remaining jobs.  Thus with more people looking for work employers can push down the pay they have to offer.

Third, many jobs have been automated thanks to artificial intelligence (AI), and computerization.   Have you seen the inside of an auto manufacturing facility?  Automation has eliminated many jobs from welding to painting.  Warehouses are now so automated that less material handlers are needed.  Office workers, I am one of them, now have computers that perform many of the manually performed functions that were done using typewriters and spreadsheets. That too reduced manpower needs. Less manpower translates to an oversupply of workers and that translates to lower pay. It is all about supply and demand.

It is unlikely that any government of any political party will change this trend.  I hope I am wrong.


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