Age-Income Gaps

This paper examines the growing income disparities between older and younger individuals. Using harmonized data from 32 countries with varying levels of economic development for the period 2004–2018, we introduce the Age Group Income Ratio (AGIR) to measure the relative disposable income of older individuals (aged 50–64) compared to younger individuals (aged 25–34). We establish three stylized facts. First, the age-income gap in favor of older individuals has significantly increased in richer countries and decreased in lower-income countries. Second, these opposing trends have different causes. In richer countries, the increase in the ageincome gap is driven by a greater rise in the employment rate of older individuals relative to younger ones. In poorer countries, the decline is due to the wages of younger individuals in employment growing faster than those of older individuals. For this reason, measures of age-income gaps based solely on labor earnings fail to capture the crucial role of employment, underestimating these recent trends. Third, the converge in education rates between young and old, in favor of the latter, explains 30% of the AGIR increase in richer countries. The increase in female labor force participation only had a minor role. Importantly, we show that the growth of the age-income gap in richer countries is unlikely to revert, as education and employment rates across age groups continue to converge.