Estimation and Projection of Lifetime Earnings


This chapter describes the estimation and prediction of age-earnings profiles for American men and women born between 1931 and 1960. The estimates are obtained using lifetime earnings records maintained by the Social Security Administration. These data have been combined with demographic information for the same individuals collected in the Survey of Income and Program Participation. The estimates show a substantial rise in lifetime earnings inequality over time and in average lifetime wages earned by American women as compared with men. In addition they show that Baby Boom workers born immediately after the Second World War are likely to enjoy higher average wages relative to economy-wide average earnings than generations born before or after them. The advantage of this cohort over earlier generations is in large measure attributable to major increases in educational attainment. The advantage over later generations is partly due to a small advantage in educational attainment, especially among men, but is primarily due to the very poor job market conditions facing younger members of the Baby Boom generation when they entered the labor force. These adverse conditions persisted for nearly two decades. Under the assumptions of the earnings model estimated here, this early disadvantage will permanently reduce relative lifetime earnings of workers in later Baby Boom cohorts in comparison with the relative earnings enjoyed by the oldest members of the Baby Boom.