November 13 , 2019
Why Older Workers’ Wages Are Flat – And What to Do About It
By the Schwartz Center for Economic Policy Analysis
Older workers have experienced almost no real wage growth since the peak of the last economic boom, despite currently record-low unemployment rates.
In the first quarter of 2019, median real weekly earnings of full-time workers ages 55 to 64 were only 0.8 percent higher than in the first quarter of 2007, just before the onset of the Great Recession. In contrast, weekly earnings for prime-age workers ages 35 to 54 grew 4.7 percent during that time. In prior business cycles, older workers’ earnings grew at similar or greater rates than wages of prime-age workers.
One development suppressing wage growth for older workers is the proliferation of alternative work arrangements (AWAs), including on-call work, employment in contract firms, temporary agency work, independent contracting, and gig work (classified as “electronically mediated employment”). The share of workers ages 55 to 75 who reported working in an AWA increased from 15.4 percent in 2005 to 24.4 percent in 2015. And independent research shows that from 2005 to 2015, 94 percent of net employment growth took place in alternative work arrangements.
These findings, and an analysis by the Schwartz Center for Economic Policy Analysis of the 2017 Contingent Worker Survey from the Bureau of Labor Statistics, show that workers over 55 are three times more likely than workers under 35, and twice as likely as workers ages 35-54, to be in AWAs.
The common image of alternative work is of independent contractors: successful, self-employed workers who control when and how long they work. However, independent contractors comprise a shrinking minority of people in AWAs.
Most workers in alternative arrangements lack the ability to bargain over the terms of their employment. Gig workers often find their jobs through electronically mediated platforms that explicitly prevent bargaining over wages. On-call workers have limited control over their schedules.
Moreover, a quarter of on-call workers are on zero-hours contracts, meaning they must be ready to come to work at any time but are not guaranteed any hours and – thus – not guaranteed predictable earnings. In addition, the Economic Policy Institute estimates that 10 to 20 percent of employers skirt labor protections to cut costs by misclassifying traditional employees as independent contractors.
Independent contractors, on-call, gig, temp agency, and contract firm jobs all share the lack of what’s known as an internal labor market. In the past, firms promoted from within and provided on-the-job training to their employees. Unions supported internal labor markets to lessen the number of entry-level jobs, ensuring that promotion ladders and training programs continued to provide workers with a path to regular raises and promotions.
With the erosion of unions, internal labor markets and training programs have disintegrated. Instead of using entry-level jobs as a tool to find future prime talent, firms now hire top talent from outside, expecting workers to acquire necessary skills on their own. A growing share of low-skilled jobs are handled by contract firms and temp agencies. With no path to promotion or wage increases, labor economists call these trends the fissuring of the workplace.
While some older workers cite flexibility and autonomy as reasons for taking on alternative work, they are outnumbered 2-to-1 by those who cite financial or labor market reasons. Four in 10 older workers have no retirement savings, including one-third of workers in the top 10 percent of earners. Inability to retire erodes workers’ bargaining power (see the Retirement Equity Lab's working paper, Why American Older Workers Have Lost Bargaining Power"). Moreover, older workers face age discrimination in the labor market; older workers who are fired or laid off spend twice as long looking for work as their younger counterparts. The fissuring of the workplace permits firms to exploit older workers’ desperation through lower wage offers.
Bottom line: Eroding bargaining power among some older workers can impact other older workers’ wages. Older workers’ willingness to take on precarious alternative work is a signal to employers that they do not have to raise wages.
The time has come to devote special attention to the increasing vulnerability of older workers. To protect older workers from exploitation, the U.S. Department of Labor should create an Older Workers’ Bureau, similar to the creation of the Women’s Bureau in 1920 to protect women in the labor market.
Working longer is also not an antidote to inadequate retirement savings for most workers, especially those in low-paying AWAs. While a small number – two percent – of older workers cite alternative work as a way of making ends meet until they can retire, low wages and lack of access to retirement plan coverage on the job mean older workers taking on these jobs have little ability to save.
All workers deserve to have a choice between work and retirement at older ages. Increased Social Security benefits and the creation of Guaranteed Retirement Accounts (GRAs) would allow all Americans access to a secure retirement. GRAs are a proposal for universal individual accounts funded by employer and employee contributions throughout a worker’s career and a refundable tax credit. With GRAs, workers can accumulate the savings they need to retire, rather than be forced into precarious, low-paying, alternative arrangements. Moreover, if older workers could choose retirement over bad jobs, employers would be compelled to offer better pay and offer traditional employment to those choosing to extend their careers.
