Countries for Old Men: An Analysis of the Age Wage Gap

Abstract

In the last three decades, the wages of older workers in many high-income countries have grown at a much faster rate than the wages of younger workers. This paper uses extensive data from multiple countries to provide an analysis of this age wage gap. First, the widening of the age wage gap stems from what we refer to as positional changes, i.e. the increasing difficulty of reaching high-paying jobs experienced by younger workers accompanied by an increase in the likelihood of reaching such jobs for older workers when keeping the support of the wage distribution and wage inequality fixed. Second, a large share of the slowdown in the careers of younger workers occurred within firms, while older workers gained exclusively because they increased over time the probability of working for a high paying firm. We discuss why the fact that positional changes are the main component of the increase in the age wage gap suggests a secondary role for classic explanations related to changes in returns to experience or in the relative price of different skills. The last portion of the analysis shows that the increase in the age wage gap is larger for firms with greater constraints on adding higher-ranked jobs to their organization, which highlights the role of career spillovers in widening the age wage gap.