Technological Progress and the Earnings of Older Workers

Introduction This paper examines whether the earnings of older US workers track overall increases in total factor productivity (TFP) as closely as those of their younger colleagues. The US population is aging: longevity is increasing, while fertility is, if anything, trending in the opposite direction. If the marginal product of younger workers rises proportionately with TFP but the marginal product of older workers lags behind, then innovation will, in effect, tend to diffuse more slowly as the labor force ages. Retirement timing may be influenced as well. In general, as longevity rises, we expect both work lives and retirement spans to increase. Workers’ optimal allocations of extra years of life between career and retirement will presumably depend upon the rate of pay available. In fact, we find that the pay of older US employees does not follow TFP growth quite as closely as the remuneration of younger workers — though the difference is, perhaps, surprisingly small — and we attempt to provide quantitative assessments of the likely impact on the economy.