The wage gap between older and younger workers is greater than when Boomers entered the job market. Image: Shutterstock

When Baby Boomers began to enter the job market in the 1960s, they found themselves in a tough spot. The huge supply of young workers outweighed demand for entry-level positions, leading to a slowdown in the growth of younger workers’ wages.

Luckily for them, the market dynamics would soon flip in their favor.

Today, Baby Boomers earn much more than their younger colleagues—which you might expect, since older workers generally earn more on average.

What’s surprising, though, is that the wage gap between older and younger workers is greater than when Boomers entered the job market. In fact, the gap between workers over 55 and those under 35 increased by 61 percent in the United States between 1979 and 2018.

So why didn’t Baby Boomers see their wages stay low throughout their careers? That is, with Boomers being such a large cohort, why did they not experience the same oversupply (and downward pressure on wages) as they moved into mid- and senior-level positions?

A new study by Kellogg assistant professor of strategy Nicola Bianchi and Matteo Paradisi of the Einaudi Institute for Economics and Finance shows why.

In short, the Boomers benefited from a variety of structural changes to the labor market. These shifts—like delayed retirement, the high cost of moving jobs, and stagnant firm growth—have been a boon to older workers, keeping them in higher-paying positions for longer.

This comes at the expense of younger workers, who cannot reach the ranks held by older workers. Instead, they face lower wages, slow career growth, and more frequent job changes.

“We know that worker demographics have changed—the workforce has become older—but the usual supply and demand dynamics have not applied,” Bianchi says. “In fact, the opposite is true. And it’s due to macroeconomic shifts, not necessarily from demographic shifts.”

Those shifts could mean trouble for firms who are looking to recruit and retain young workers, since firms often cannot offer high wages and the potential to rise in the ranks. “It’s going to be one of the biggest issues firms face in the coming years,” Bianchi says.

[This article has been republished, with permission, from Kellogg Insight, the faculty research & ideas magazine of Kellogg School of Management at Northwestern University]