Intergenerational Progress: Stagnant or Just Slowing Down?

 

Parents want their children to prosper.  However, there’s an increasing sense that young Americans today are not as financially well-off as previous generations were in the same stage of life.  Whether Americans are continuing to progress from generation to generation has become the subject of a growing literature in economics and other social sciences.    

Research by Chetty (2014, 2017) found that intergenerational progress had largely stopped, that inflation-adjusted earnings of the typical (median) young American is no higher than that of his or her parents at the same age.  This conclusion has been challenged by Twenge (2023) and others who argue that young people today are materially better off than their parents.

The most recent high-quality study to take a crack at this question is Kevin Corinth (AEI) and Jeff Larrimore’s (Federal Reserve Board) 2024 paper.  Their study draws on data from the Current Population Survey to measure the income of couples and households over the sixty-year period from 1964 to 2023.  The focus is on adults in their prime earning years (ages 36 to 40). 

Economies and societies are dynamic.  Studies of economic and social change over time always entail difficulties as researchers try to identify the factors driving observed changes: labor force participation, education, social policy, etc.  The authors don’t try to offer a definitive explanation of the factors driving changes in income between generations.  Rather, they present several sensitivity tests which invite readers to be introspective and to sort it out on their own.  This contributes to the enjoyment of the paper.   

Corinth and Larrimore’s results are in a middle ground between Chetty and Twenge.  Corinth and Lattimore find that the rate of income growth between generations has slowed down but, unlike Chetty, progress has not stopped entirely.  Every generation is doing better than the preceding one.  However, the largest gains have accrued to those at the top of the income distribution and the highly educated.  This is consistent with previous work that documents the growth of income inequality in American society. 

Millennials have often been characterized as an unlucky generation having experienced two deep economic downturns in early adulthood.  However, Corinth and Larrimore find that Gen X is the unluckiest generation.  Gen X median income growth is the lowest of any generation, less than 10 percent in terms of market income.  By contrast, Millennial income growth is several percentage points higher though still in the low teens.  Figure 2 from their paper illustrates.  Note that the difference in earnings at each age is growing smaller with each succeeding generation

For me, the most interesting aspect of their work concerned the difference in income growth when measured in terms of market income versus a post-tax, post-transfer basis.  Gen X and the Millennials income growth is several points higher when measured on a post-tax, post-transfer basis.  Silent and Boomer income growth was not.  One can speculate that this is due to the enactment of fiscal policies over the last two decades that emphasize tax cuts along with increased social spending all of which are financed through government borrowing.  Deterioration in America’s fiscal position is going to make it more difficult for future generations to enjoy increases in purchasing power due to tax cuts and growth in transfer spending. 

The authors briefly touch on the economic condition of Gen Zers in their study.  Gen Z is too young for their focal age range (36-40).  The oldest Gen Z in 2023 was 27 years of age.  However, their study shows the rise in dependency on parental support in each succeeding generation (as measured by the proportion of members dependent on parents for 50 percent or more of their income).  The authors find that parental support is the only reason that younger Millennials (30 and below) had higher incomes than Gen Xers.  That is, market incomes for those 30 and under have been stagnant which contributes to the perception that intergenerational progress has stalled.  In this regard, their findings are similar to Chetty’s.