BlueSky Thinking Summary

Over the recent decades, the intergenerational wage gap between older and younger workers has enormously increased, defying the trend typically anticipated by normal economic forces.

In a study by Nicola Bianchi and Matteo Paradisi, research reveals that major structural changes in the labor market, such as, delayed retirement and stagnant firm growth have very much favored older workers.

These allow them to hold on and retain higher-paying jobs for a longer period of time, which limits career advancement opportunities for younger workers, keeping them with lower wages and thinner growth but higher job turnover.

Looking across data from a large number of high-income countries, the study rules out rising income inequality as the main cause and points to "negative career spillovers," whereby older workers staying longer in top positions reduces access for younger generations.

This trend makes it very difficult for firms to attract and retain younger talent significantly, as these business organizations will have to come up with innovative strategies amidst an aging workforce.

Entrenched macroeconomic conditions will take their time to change even after the retirement of the Baby Boomers.