Can Aging Population Explain Income Stagnation?
Since 1970, the number of retired workers receiving Social Security has increased by 159% from 13.35 million to 34.59 million. During the same period, the number of active employed workers increased by less than half that amount, by 77% from 78.7 million to 139 million. The fact that retired workers have increased so significantly relative to active workers since 1970 can be explained by advances in medical care that have increased life expectancy by 20 years since 1930.
The top chart shows that the ratio of active workers to retired workers decreased by almost 32% since 1970, from 5.90-to-1 in 1970 to 4.02-to-1 by 2010. The bottom chart shows the inverse - retired workers as a percent of active workers - which has increased from 17% in 1980 to 24.8% in 2010.
So what? Well, perhaps this demographic trend of an aging U.S. population explains why real median household income has stagnated in recent decades, according to Census Bureau data. Relative to active workers, we now have significantly more retirees, many of whom might have significant assets (a house with no mortgage, stocks and bonds, mutual funds, etc.) that make them very wealthy, but in retirement would be receiving relatively low annual incomes compared to when they were working full-time.
With an increase in retirees, we have thousands or millions more Americans over time moving from top household income quintiles while working, into lower income quintiles when in retirement, bringing down average or median household income as measured by the Census Bureau.
Therefore, the growing ratio of retirees to active workers makes it appear that household income is stagnating, when in fact the median household income of active workers (or real compensation per hour, see chart below) could be increasing, and the average wealth per household could also be increasing.
Q: Could the aging of the U.S. population make it appear that we're in a period of "Great Stagnation" based on stagnating household income, when in reality the finding of stagnation is only a "statistical artifact" or "spurious finding" due to a significant demographic shift over time?
Update: The chart below shows no stagnation over time in "Real Compensation per Hour," which has increased by almost 30% since 1990 and almost 14% since 2000 (thanks to Peak Trader). Perhaps another factor in the "non-stagnation story" is that fringe benefits have increased over time relative to money income, and that increase in compensation is not captured by the Census Bureau when it calculates household income. In that case, household money income could be stagnating at the same time that total household compensation is increasing.