Inequality, Cumulative Advantage, and Retirement Security
Richard W. Johnson, Urban Institute
Melissa M. Favreault, Urban Institute
Karen E. Smith, Urban Institute
The distribution of earnings across the labor force has become increasingly unequal over the past generation, as wages soared for those near the top of the earnings distribution while falling or stagnating for everyone else. These trends may reverberate into old age, because retirement income depends on how much is earned at younger ages. However, the relationship between earnings and retirement well-being is complex, partly because some aspects of the retirement system redistribute benefits from high earners to those who earned relatively little when working, perhaps partially offsetting the effects of cumulative advantage. This paper examines recent trends in economic inequality at older ages, measures how inequality changes as generations age, projects the impact of growing earnings inequality on future retirement incomes, and identifies policy options that could promote greater equality in later life. Data come from the Health and Retirement Study and the Urban Institute’s unique dynamic microsimulation model.