Population Dynamics and Economic Inequality

Broad movements in American earnings inequality since the mid-20th century show a correlation with the working-age share of the population, evoking concerns dating to the 18th century that as more individuals in a population seek work the returns to labor diminish. The possibility that demographic trends, including the baby boom and post-1965 immigration, contributed to the rise in inequality was referenced in literature before the early 1990s but largely discarded thereafter. This paper reconsiders the impact of supply-side dynamics on inequality, in the context of a literature that has favored demand-side explanations for at least 30 years, and a recent movement toward equality that coincides with the retirement of the baby boom generation, reduced immigration, and a long trend toward reduced fertility. Evidence suggests an important role for the population age distribution in economic inequality, and coupled with demographic projections of an aging population and continued low fertility portends a broad trend toward greater equality over at least the next two decades.

That is the abstract of a new paper by Jacob L. Vigdor.  It was part of a recent NBER conference on fertility and demographics, kudos to Melissa Kearney (still underrated as a social force for good) and Philip B. Levine for putting it on.