NOT FOR QUOTATION WITHOUT PERMISSION OF THE AUTHOR
LIFE-CYCLE EARNINGS OF RESPONDENTS IN THE RETIREMENT HISTORY STUDY
Robert L. Clark
Working Papers
are interim reports on work of the International Institute for Applied Systems Analysis and have received only limited review. Views or opinions expressed herein do not necessarily repre- sent those of the Institute or of its National Member Organizations.INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS A-2361 Laxenburg, Austria
FOREWORD
Low f e r t i l i t y l e v e l s i n IIASA c o u n t r i e s a r e c r e a t i n g a g i n g p o p u l a t i o n s whose demands f o r h e a l t h c a r e and income m a i n t e n a n c e
( s o c i a l s e c u r i t y ) w i l l i n c r e a s e t o u n p r e c e d e n t e d l e v e l s , t h e r e b y c a l l i n g f o r t h p o l i c i e s t h a t w i l l s e e k t o promote i n c r e a s e d f a m i l y c a r e and w o r k l i f e f l e x i b i l i t y . The new P o p u l a t i o n Program w i l l examine c u r r e n t p a t t e r n s of p o p u l a t i o n a g i n g and c h a n g i n g l i f e - s t y l e s i n IIASA c o u n t r i e s , p r o j e c t t h e n e e d s f o r h e a l t h and income s u p p o r t t h a t s u c h p a t t e r n s a r e l i k e l y t o g e n e r a t e d u r i n g t h e n e x t s e v e r a l d e c a d e s , and c o n s i d e r a l t e r n a t i v e f a m i l y and employment p o l i c i e s t h a t might r e d u c e t h e s o c i a l c o s t s o f m e e t i n g t h e s e n e e d s .
The economic e f f e c t s of p o p u l a t i o n a g i n g d e r i v e from be- h a v i o r a l d i f f e r e n c e s o v e r t h e l i f e c y c l e and t h e a g g r e g a t e r e s - ponse t o t h e c h a n g i n g p r o p o r t i o n of t h e p o p u l a t i o n i n v a r i o u s l i f e s t a g e s . Thus, t h e IIASA P o p u l a t i o n Program i n c l u d e s s t u d i e s of c h a n g i n g work h a b i t s , m a r i t a l s t a t u s e s , and h e a l t h of i n d i v i - d u a l s a s t h e y a g e . T h i s p a p e r examines t h e l i f e c y c l e e a r n i n g s p a t t e r n s o f a c o h o r t o f US men and women from t h e R e t i r e m e n t H i s t o r y S t u d y . T h e i r e a r n i n g s a r e shown t o r i s e u n t i l t h e mid- 50s and t h e n f a l l d u s t o r e d u c t i o n s i n t h e amount of l a b o r sup- p l i e d . The a g e - e a r n i n g s p r o f i l e s d i f f e r by r a c e and s e x , w i t h i n c r e a s e d e d u c a t i o n p r o d u c i n g h i g h e r e a r n i n g s and p o o r h e a l t h l e a d i n g t o l o w e r e a r n i n g s . These f i n d i n g s i l l u s t r a t e t h e e a r n - i n g s p a t t e r n s o f o l d e r workers a s t h e y aged i n t o t h e i r 60s i n t h e US under t h e p e n s i o n and economic c o n d i t i o n s t h a t p r e v a i l e d i n t h e 1 9 7 0 s . U n d e r s t a n d i n g t h e e f f e c t s o f p o p u l a t i o n a g i n g r e q u i r e s a knowledge o f t h e s e and o t h e r l i f e c y c l e p a t t e r n s a l o n g w i t h a t h e o r y of how i n d i v i d u a l s and s o c i e t i e s a l t e r t h e i r be- h a v i o r i n t h e p r e s e n c e o f an a l t e r e d p o p u l a t i o n a g e s t r u c t u r e . An o b j e c t i v e o f t h e IIASA P o p u l a t i o n Program i s t o promote re- s e a r c h examining t h e s e r e s p o n s e s t o c h a n g i n g a g e s t r u c t u r e s of p o p u l a t i o n s .
A n d r e i Rogers Leader
P o p u l a t i o n Program
LIFE-CYCLE EARNINGS OF RESPONDENTS I N THE RETIREMENT H I S T O R Y S T U D Y
I . I N T R O D U C T I O N
Human c a p i t a l t h e o r y h a s shown t h e i m p o r t a n c e o f examining l i f e - c y c l e e a r n i n g s p a t t e r n s i n s t e a d of f o c u s i n g on a s i n g l e y e a r ' s e a r n i n g s . Most o f t h e s t u d i e s s e e k i n g t o i l l u s t r a t e age- e a r n i n g s p r o f i l e s and t h e r e t u r n t o i n v e s t m e n t i n t r a i n i n g and s c h o o l i n g have employed c r o s s - s e c t i o n a l d a t a t o c o n s t r u c t s y n t h e - t i c c o h o r t s . I n t h e s e d a t a , t h e e f f e c t s o f d i f f e r e n t c o h o r t s can- n o t be d i s e n t a n g l e d from t h e e a r n i n g s r e s p o n s e t o l a b o r market e x p e r i e n c e . Recent s t u d i e s by Ruggles and Ruggles (1977) and Rosen and Taubman (1982) have used s o c i a l s e c u r i t y e a r n i n g s r e c o r d s o f i n d i v i d u a l s t o examine t h e l i f e c y c l e e a r n i n g s of s p e c i f i c c o h o r t s . T h i s p a p e r examines t h e l i f e c y c l e e a r n i n g s p a t t e r n s o f p e r s o n s i n t h e R e t i r e m e n t H i s t o r y S t u d y (RHS) by u s i n g t h e i r matched s o c i a l s e c u r i t y e a r n i n g s d a t a i n c o n j u n c t i o n w i t h t h e p e r s o n a l i n f o r m a t i o n c o n t a i n e d i n t h e R H S . The f i n d i n g s r e l a t e t o a s p e c i f i c c o h o r t o f i n d i v i d u a l s b o r n between 1906-1911rmd. a r e l i m i t e d t o t h e i r e a r n i n g s e x p e r i e n c e d u r i n g t h e l a s t h a l f o f t h e i r working l i f e .
The RHS and t h e m a t c h i n g e a r n i n g s r e c o r d s a r e d e s c r i b e d i n s e c t i o n I1 of t h i s p a p e r . T h i s s e c t i o n a l s o d i s c u s s e s some of t h e a d v a n t a g e s and d i s a d v a n t a g e s of u s i n g s o c i a l s e c u r i t y e a r n i n g s d a t a . S e c t i o n I11 p r e s e n t s e a r n i n g s r a t i o s a s t h e c o h o r t a g e s .
E s t i m a t e d a g e - e a r n i n g s p r o f i l e s a r e examined i n s e c t i o n I V a n d t h e c o n c l u s i o n s a p p e a r i n s e c t i o n V .
11. RESPONDENTS I N THE RETIREMENT HISTORY STUDY
T h i s p a p e r e x a m i n e s t h e e a r n i n g s o f t h e r e s p o n d e n t s i n t h e R e t i r e m e n t H i s t o r y S t u d y , a t e n - y e a r l o n g i t u d i n a l s u r v e y begun i n 1969. R e s p o n d e n t s i n c l u d e m a r r i e d men, men who w e r e n o t m a r - r i e d i n 1 9 6 9 , a n d women who w e r e n o t m a r r i e d i n 1969. The unmar- r i e d r e s p o n d e n t s may h a v e b e e n m a r r i e d p r i o r t o t h e d a t e o f t h e f i r s t s t u d y . R e s p o n d e n t s w e r e i n t e r v i e w e d e v e r y two y e a r s a n d a n s w e r e d a series o f q u e s t i o n s c o n c e r n i n g t h e i r h e a l t h , e d u c a t i o n , work h i s t o r y , a n d c u r r e n t income s t a t u s . * The s o c i a l s e c u r i t y e a r n i n g s h i s t o r i e s o f t h e r e s p o n d e n t s from 1951-1974 a r e a v a i l - a b l e on t h e summary e a r n i n g s r e c o r d . T h e s e d a t a r e p r e s e n t a n n u a l e a r n i n g s i n employment c o v e r e d by s o c i a l s e c u r i t y up t o t h e maxi- mum e a r n i n g s s u b j e c t t o t h e s o c i a l s e c u r i t y t a x . The s o c i a l
s e c u r i t y d a t a a l s o i n c l u d e q u a r t e r s o f c o v e r e d employment i n e a c h y e a r a n d t h e q u a r t e r i n which e a r n i n g s e x c e e d e d t h e t a x a b l e
maximum e a r n i n g s .
T h r e e main l i m i t a t i o n s a r i s e w i t h t h e s o c i a l s e c u r i t y e a r n i n g s d a t a . The f i r s t i s i n c o m p l e t e d a t a on a c t u a l e a r n i n g s . T h i s c a n o c c u r b e c a u s e w o r k e r s w e r e i n u n c o v e r e d employment d u r i n g some o f t h e i r w o r k l i f e . The e x t e n s i o n o f c o v e r a g e d u r i n g t h e 1 9 5 0 s a n d
1960s i m p l i e s t h a t some p e r s o n s c o u l d h a v e z e r o r e p o r t e d e a r n i n g s e a r l y i n t h e s a m p l e p e r i o d a n d p o s i t i v e v a l u e s i n t h e more r e c e n t y e a r s . I n a d d i t i o n , f e d e r a l government w o r k e r s a n d some s t a t e
a n d l o c a l g o v e r n m e n t a l e m p l o y e e s r e m a i n o u t s i d e t h e s o c i a l s e c u r i t y s y s t e m . A s a r e s u l t , t h e i r a g e - e a r n i n g s p r o f i l e may h a v e g a p s a s t h e s e w o r k e r s move i n t o a n d o u t o f t h e g o v e r n m e n t a l s e c t o r . I n a d d i t i o n , t h e i r r e p o r t e d e a r n i n g s i n a n y y e a r may r e p r e s e n t s u p - p l e m e n t s t o t h e i r n o n c o v e r e d government e a r n i n g s r a t h e r t h a n t o t a l e a r n i n g s . Rosen a n d Taubman ( 1 9 8 2 ) p r o c e e d w i t h t h e i r a n a l y s i s a f t e r making t h e a s s u m p t i o n t h e p r o b a b i l i t y o f z e r o e a r n i n g s
*See I r e l a n ( 1 9 7 2 ) f o r a more d e t a i l e d d i s c u s s i o n o f t h i s s u r v e y .
i n any q u a r t e r i s u n c o r r e l a t e d w i t h t h e i n d e p e n d e n t v a r i a b l e s . I n g e n e r a l , t h i s h y p o t h e s i s i s m a i n t a i n e d t h r o u g h o u t t h i s p a p e r ; however, a g e - e a r n i n g s p r o f i l e s f o r p e r s o n s who a r e nongovernment w o r k e r s * i n 1969 a r e a l s o examined a l o n g w i t h t h e e a r n i n g s p a t t e r n s
o f p e r s o n s w i t h p o s i t i v e e a r n i n g s i n e v e r y y e a r b e t w e e n 1953-1974.
These s a m p l e r e s t r i c t i o n s r e d u c e o r e l i m i n a t e t h e z e r o e a r n i n g s o b s e r v a t i o n s .
The s e c o n d i s s u e i s t h e l a c k o f a c o m p l e t e l i f e t i m e r e c o r d o f e a r n i n g s . The e a r n i n g s d a t a u s e d i n t h i s s t u d y a r e from
1953 when members o f t h e RHS sample w e r e a g e d 42-47 and end i n 1974 when t h e y w e r e 6 3 - 6 8 y e a r s o f a g e . T h u s , t h i s a n a l y s i s p e r - t a i n s o n l y t o t h e l a s t h a l f o f t h e w o r k i n g y e a r s and d o e s n o t e x p l a i n d i f f e r e n c e s i n i n i t i a l l e v e l s of e a r n i n g s o r d i f f e r e n c e s i n t h e growth o f e a r n i n g s d u r i n g t h e f i r s t 20 y e a r s o f work
e x p e r i e n c e . The d a t a a l s o do n o t c o n t a i n a n a s s e s s m e n t o f h o u r l y wage d i f f e r e n c e s o r f l u c t u a t i o n s i n t h e a n n u a l h o u r s o f work.
The t h i r d d a t a p r o b l e m s t e m s from t h e t r u n c a t i o n o f a n n u a l e a r n i n g s o f t h e maximum t a x a b l e e a r n i n g s i n e a c h y e a r . The u s e o f t h e t r u n c a t e d d a t a i n l e a s t s q u a r e s r e g r e s s i o n s would y i e l d b i a s e d c o e f f i c i e n t s . T h e r e f o r e , t o t a l a n n u a l e a r n i n g s a r e imputed f o r p e r s o n s whose e a r n i n g s e x c e e d t h e maximum b a s e d o n t h e q u a r t e r i n which t h e i r e a r n i n g s w e r e g r e a t e r t h a n t h e maxi- mum t a x a b l e e a r n i n g s . * * D a t a from 1951 and 1952 a r e n o t i n c l u d e d b e c a u s e a l a r g e number o f p e r s o n s have m i s s i n g v a l u e s f o r t h e
*The RHS d o e s n o t d i s t i n g u i s h between f e d e r a l c i v i l i a n g o v e r n - ment w o r k e r s who a r e n o t c o v e r e d by s o c i a l s e c u r i t y and s t a t e and l o c a l government w o r k e r s who may be c o v e r e d by s o c i a l sec- u r i t y . T h u s , i t was d e c i d e d t o e l i m i n a t e a l l government w o r k e r s f r o m t h e r e s t r i c t e d s a m p l e i n o r d e r t o i n c r e a s e t h e l i k e l i h o o d t h a t t h e e a r n i n g s h i s t o r i e s r e p r e s e n t e a r n i n g s on a p r i m a r y job t h r o u g h o u t a n i n d i v i d u a l ' s w o r k l i f e .
* * T h i s method e s t i m a t e s t o t a l e a r n i n g s f o r p e r s o n s w i t h r e p o r t e d e a r n i n g s e x c e e d i n g t h e maximum t a x a b l e e a r n i n g s , by a s s u m i n g t h e y p a s s e d t h e e a r n i n g s c e i l i n g i n t h e m i d d l e of t h e q u a r t e r i n which t h e y a r e shown t o h a v e a n n u a l e a r n i n g s o v e r t h e l i m i t . Next
i t assumes t h a t t h e p e r s o n h a s c o n s t a n t e a r n i n g s t h r o u g h o u t t h e y e a r . Thus, a n n u a l e a r n i n g s c a n b e e s t i m a t e d by e x t r a - p o l a t i n g from t h e p o i n t a t which e a r n i n g s e x c e e d e d t h e maximum t a x a b l e e a r n i n g s . T h i s p r o c e d u r e i s s i m i l a r t o t h a t employed by Ruggles and R u g g l e s ( 1 977) and Fox ( 1 9 7 9 )
.
Rosen and Taubman( 1 9 8 2 ) c o u l d n o t u s e t h i s method b e c a u s e t h e y d i d n o t h a v e t h e r e q u i r e d t i m i n g i n f o r m a t i o n c o n c e r n i n g t h e q u a r t e r i n which e a r n i n g s e x c e e d e d t h e t a x a b l e maximum.
number o f q u a r t e r s w i t h c o v e r e d e a r n i n g s and t h e q u a r t e r i n which t h e p e r s o n e x c e e d e d t h e e a r n i n g s maximum. E a r n i n g s a r e d e f l a t e d and r e p o r t e d t h r o u g h o u t i n 1967 U S d o l l a r s a s measured by t h e consumer p r i c e i n d e x .
111. EARNINGS RATIOS AND DEMOGRAPHIC CHARACTERISTICS
Annual e a r n i n g s a r e d e t e r m i n e d f o r e a c h o f t h e RHS r e s p o n - d e n t s . The r e s p o n d e n t s a r e t h e n s o r t e d on t h e b a s i s o f s e x and r a c e and t h e mean a n n u a l e a r n i n g s a r e c a l c u l a t e d f o r e a c h g r o u p . The a v e r a g e a n n u a l e a r n i n g s a r e t h e n u s e d t o c o n s t r u c t age-
e a r n i n g s p r o f i l e s f o r e a c h demographic g r o u p . The r e l a t i v e e a r n i n g s o f t h e v a r i o u s g r o u p s a r e t h e n compared u s i n g e a r n i n g s
r a t i o s .
Age-Earnings P r o f i l e s : Sex D i f f e r e n c e s
The mean r e a l e a r n i n g s o f male RHS r e s p o n d e n t s r o s e from US $4155 i n 1953 when t h e i r a v e r a g e a g e was 4 4 y e a r s t o U S $5262 i n 1966 o r a n i n c r e a s e o f 26.6 p e r c e n t i n a n n u a l e a r n i n g s . A f t e r p e a k i n g i n 1966 when t h e a v e r a g e a g e o f t h e c o h o r t was 57 y e a r s , mean a n n u a l e a r n i n g s d e c l i n e s t e a d i l y t h r o u g h 1974 (see T a b l e 1 ) . Average f e m a l e e a r n i n g s f o l l o w a s i m i l a r p a t t e r n , r i s i n g from between 1953 and 1967 and t h e n d e c l i n i n g . The p e r c e n t i n c r e a s e i n f e m a l e e a r n i n g s i s o v e r t w i c e t h e r i s e i n male e a r n i n g s s o t h a t t h e r a t i o o f f e m a l e e a r n i n g s i n c r e a s e s from 2 9 . 2 p e r c e n t of a v e r a g e male e a r n i n g s i n 1953 t o 38.6 p e r c e n t i n 1966. The sub- s e q u e n t d e c l i n e i n f e m a l e e a r n i n g s i s s l o w e r t h a n t h e d e c l i n e i n male e a r n i n g s s o t h a t t h i s e a r n i n g s r a t i o c o n t i n u e s t o r i s e and r e a c h e s 43.1 i n 1974. T h i s r e p r e s e n t s an i n c r e a s e i n t h e e a r n i n g s r a t i o o f a l m o s t 50 p e r c e n t ( f r o m 2 9 . 2 t o 4 3 . 1 ) between t h e t i m e t h e mean a g e o f t h e c o h o r t i s 4 4 u n t i l i t r e a c h e s 65.
T a b l e 1 . Mean r e a l e a r n i n g s by s e x . a
Mean r e a l e a r n i n g s b
P e r c e n t of 1953 e a r n i n g s
Year Male Fema 1 e Male Female Female e a r n i n g s a s p e r c e n t of male e a r n i n g s
a Sample i n c l u d e s 6803 male and 2886 female r e s p o n d e n t s i n t h e 1969 RHS.
b ~ a l u e s i n 1967 US d o l l a r s a s measured by t h e consumer p r i c e index.
T h e s e d a t a on t h e e a r n i n g s o f a g r o u p of men and u n m a r r i e d women do n o t i n d i c a t e a w o r s e n i n g o f t h e r e l a t i v e e a r n i n g s p o s i -
t i o n o f women a s t h e y a g e . I n s t e a d , t h e r a t i o o f e a r n i n g s o f women t o t h a t o f men c o n s i s t e n t l y r i s e s a s t h e a v e r a g e a g e o f
t h e g r o u p i n c r e a s e s from 4 4 t o 65. T h e s e f i n d i n g s may seem t o c o n t r a d i c t t h e u s u a l c o n c l u s i o n t h a t f e m a l e a g e - e a r n i n g s p r o f i l e s d o n o t r i s e a s s t e e p l y a s t h e men's p r o f i l e ( S a w h i l l 1973;
B l i n d e r 1 9 7 3 ) . The a p p a r e n t c o n t r a d i c t i o n i s d u e t o r e s t r i c t i o n o f t h e a g e r a n g e t o 42-68 y e a r s o f a g e . D e s p i t e t h e f i n d i n g t h a t
f e m a l e s t e n d t o h a v e f l a t t e r and l o w e r l i f e t i m e e a r n i n g s p r o f i l e s , most s t u d i e s f i n d women's e a r n i n g s p e a k l a t e r a n d , a s a r e s u l t , t h e y h a v e r i s i n g e a r n i n g s r a t i o s d u r i n g t h e l a t t e r s t a g e s o f w o r k l i f e . F i g u r e 1 h e l p s t o c l a r i f y t h i s d i s t i n c t i o n by showing a male e a r n i n g s p r o f i l e t h a t rises more r a p i d l y d u r i n g t h e f i r s t h a l f of w o r k i n g l i f e b u t p e a k s e a r l i e r t h a n t h e l o w e r f e m a l e e a r n i n g s p a t h . T h u s , t h e r e l a t i v e e a r n i n g s o f women f a l l e a r l y i n l i f e b u t s u b s e q u e n t l y r i s e . The v e r t i c a l l i n e i n d i c a t e s t h e e a r l i e s t a g e c o n t a i n e d i n t h i s s a m p l e and shows how a f t e r t h e e a r l y 1940s t h e r e l a t i v e e a r n i n g s o f women a r e r i s i n g . *
The r i s i n g r e l a t i v e e a r n i n g s o f t h e n o n m a r r i e d women i s i n p a r t d u e t o t h e i n c r e a s i n g l a b o r f o r c e p a r t i c i p a t i o n d u r i n g t h e p e r i o d . I f t h e s a m p l e i s r e s t r i c t e d t o p e r s o n s who were n o t government w o r k e r s i n 1969 and who had p o s i t i v e c o v e r e d e a r n i n g s i n e a c h y e a r , t h e t r e n d i n r e l a t i v e e a r n i n g s f o r t h o s e p e r s o n s w i t h c o n t i n u o u s work h i s t o r i e s c a n b e o b s e r v e d . T h i s r e s t r i c - t i o n o f t h e sample r a i s e s t h e a v e r a g e e a r n i n g s o f men and women b u t l o w e r s t h e growth r a t e o f e a r n i n g s . Those e a r n i n g s p a t t e r n s a r e shown i n T a b l e 2 which a l s o i n d i c a t e s t h a t t h e i n c r e a s e i n t h e r e l a t i v e e a r n i n g s o f t h e women w i t h e a r n i n g s i n e v e r y y e a r i s s u b s t a n t i a l l y l e s s t h a n i s shown i n T a b l e 1 . Thus, much o f t h e r i s i n g r e l a t i v e e a r n i n g s o f f e m a l e s c a n b e a t t r i b u t e d t o t h e i n c r e a s i n g p r o p o r t i o n o f women who w e r e w o r k i n g . However, e v e n f o r p e r s o n s who had e a r n i n g s i n e v e r y y e a r , t h e r e i s a n i n c r e a s e
* T h i s i d e a was c l a r i f i e d i n h e l p f u l d i s c u s s i o n s w i t h Lucy k a l l a n o f t h e S o c i a l S e c u r i t y A d m i n i s t r a t i o n .
E a r n i n g s
F i g u r e 1 . Age-earnings p r o f i l e s by s e x .
T a b l e 2 . Mean r e a l e a r n i n g s f o r p e r s o n s w i t h e a r n i n g s i n e v e r y y e a r , by s e x . a
Mean r e a l e a r n i n g s b
P e r c e n t o f 1 9 5 3 e a r n i n g s
Y e a r Male F e m a l e Males F e m a l e F e m a l e e a r n i n g s a s p e r c e n t o f m a l e e a r n i n g s
1 9 5 3 6 , 2 8 2 3 , 1 0 8 100.0 100.0 4 9 . 5
1954 6 , 2 1 3 3 , 2 2 1 9 8 . 9 1 0 3 . 6 5 1 . 8
1 9 5 5 6 , 6 4 3 3 , 4 0 3 1 0 5 . 7 1 0 9 . 5 5 1 . 2
1956 6 , 8 2 2 3 , 5 4 7 1 0 8 . 6 1 1 4 . 1 5 2 .O
1 9 5 7 6 , 8 6 8 3 , 5 6 4 1 0 9 . 3 1 1 4 . 7 5 1 . 9
1 9 5 8 6 , 5 8 6 3 , 5 8 3 1 0 4 . 8 1 1 5 . 3 5 4 . 4
1959 7 , 0 8 2 3 , 7 3 6 1 1 2 . 7 1 2 0 . 2 5 2 . 8
1 9 6 0 7 , 1 6 6 3 , 7 5 0 1 1 4 . 1 1 2 0 . 7 5 2 . 3
1 9 6 1 7 , 4 5 1 3 , 9 1 7 1 1 8 . 6 1 2 6 .O 5 2 . 6
1962 7 , 4 8 1 4 , 0 1 5 1 1 9 . 1 1 2 9 . 2 5 3 . 7
1 9 6 3 7 , 4 7 4 4 , 0 7 6 1 1 9 .O 1 3 1 . 1 5 4 . 5
1964 7 , 6 7 9 4 , 3 2 6 1 2 2 . 2 1 3 9 . 2 5 6 . 3
1 9 6 5 7 , 8 7 2 4 , 2 5 7 1 2 5 . 3 1 3 7 .O 5 4 . 1
1966 8 , 2 3 4 4 , 4 3 1 1 3 1 . 1 1 4 2 . 6 5 3 . 8
1 9 6 7 8 , 3 3 2 4 , 5 2 2 132.6 1 4 5 . 5 5 4 . 3
1 9 6 8 8 , 4 6 6 4 , 6 6 2 1 3 4 . 8 1 5 0 . 0 5 5 . 1
1 9 6 9 8 , 4 7 8 4 , 8 3 3 1 3 5 .O 1 5 5 . 5 57 .O
1 9 70 8 , 3 0 0 4 , 4 0 6 1 3 2 . 1 1 4 1 . 8 5 3 . 1
1 9 7 1 7 , 9 5 3 4 , 4 0 5 1 2 6 . 6 1 4 1 . 7 5 5 . 4
1 9 7 2 8 , 0 8 7 4 , 2 9 3 1 2 8 . 7 1 3 8 . 1 5 3 . 1
1 9 7 3 7 , 2 5 8 3 , 8 1 4 1 1 5 . 5 1 2 2 . 7 5 2 . 5
1 9 74 5 , 6 2 3 2 , 9 1 8 8 9 . 5 9 3 . 9 5 1 . 9
a s a m p l e i n c l u d e s 1165 men a n d 212 women who h a v e p o s i t i v e e a r n i n g s i n e a c h y e a r a n d meet 1969 r e s t r i c t i o n s . b V a l u e s i n 1967 US d o l l a r s as m e a s u r e d b y t h e consumer p r i c e i n d e x .
in the female earnings ratio from 49.5 percent in 1953 to 57.0 percent in 1969. As this group ages through its sixties, the earnings ratio begins to decline.
Racial Differences in Earnings Profile
The earnings profiles by race indicate that during the 1950s when members of the sample were in their forties and early fifties the ratio of male nonwhite to white earnings declined slightly
(see Table 3). During the decade of the 1960s, when the average age rises from 51 to 60, the earnings ratio exhibits substantial increases. The relative earnings of nonwhite males rises from 47.6 percent of that of white males in 1960 to 56.9 percent in 1969. The earnings ratio for nonwhite males continues to rise as the cohort ages through their early sixties reaching 69 per- cent in 1973-1974. The increasing relative earnings of nonwhite men during the 1960s is consistent with the findings of Haworth et al. (1975), Smith and Welch (1977), and Carliner (1982).
The earnings of nonwhite females decline as a proportion of the earnings of white females throughout most of the sample period. Table 4 shows this earnings ratio declined from a high of 52.5 in 1953 to 35.3 in 1974. However, both white and non- white women had rising relative income in comparison to white men during this time. Thus, these data do not support the
hypothesis that demographic groups with relatively low earnings have progressively lower relative income with advancing age.
IV. ESTIMATION OF AGE-EARNINGS PROFILES
These earnings history data are sufficient to estimate age- earnings profiles for the survey respondents. The earnings data on the respondents are pooled so that all cross-section and
time-series observations are used in a single ordinary least squares regression. The regressions use a conventional speci- fication with earnings assumed to be a function of education, age, age squared, race, sex, and health status. The earnings
Table 3. Mean real earnings of males by race. a
Mean r e a l e a r n i n g s P e r c e n t of 1953 e a r n i n g s
Year White Nonwhite White Nonwhite Nonwhite e a r n i n g s a s a p e r c e n t of w h i t e e a r n i n g s
a Sample i n c l u d e s 6077 w h i t e males and 726 nonwhite m a l e s i n t h e RHS i n 1969.
b V a l u e s i n 1967 US d o l l a r s a s measured by t h e consumer p r i c e i n d e x .
Table 4 . Mean r e a l earnings of females by r a c e . a
Mean real earnings Percent of 1953 earnings
Year White Nonwhite White Nonwhite Nonwhite earnings as a percent of white earnings
asample includes 2485 white females and 401 nonwhite females in the RHS in 1969.
b Values in 1967 US dollars as measured b y the consumer price index.
d a t a a r e from t h e summary e a r n i n g s r e c o r d s and r e p r e s e n t e a r n i n g s r e p o r t e d t o t h e S o c i a l S e c u r i t y A d m i n i s t r a t i o n i n e a c h y e a r be- tween 1953-1974 w h i l e e d u c a t i o n , r a c e , s e x , a n d h e a l t h s t a t u s a r e t h o s e r e p o r t e d i n 1969. The a g e o f t h e r e s p o n d e n t s r a n g e s from 4 2 f o r t h e y o u n g e s t r e s p o n d e n t i n 1953 t o 6 8 f o r t h e o l d e s t i n
1974. The d e p e n d e n t v a r i a b l e i n a l l r e g r e s s i o n s i s t h e l o g a r i t h m of a n n u a l e a r n i n g s . The sample i s l i m i t e d t o p e r s o n s working i n
1969 who were n o t government employees.
H e a l t h s t a t u s i s measured by t h e Duke H e a l t h I n d e x which i s c o n s t r u c t e d from a s e r i e s o f q u e s t i o n s i n t h e RHS ( F i l l e n b a u m and Maddux, 1 9 7 7 ) . V a l u e s o f t h e i n d e x r a n g e from 1 (good h e a l t h ) t o
5 ( b a d h e a l t h ) . I n t h e f o l l o w i n g a n a l y s i s , p e r s o n s w i t h v a l u e s o f 1 and 2 a r e grouped t o g e t h e r and form t h e o m i t t e d c a t e g o r y i n t h e r e g r e s s i o n s . P e r s o n s w i t h v a l u e s o f 4 and 5 a r e grouped t o g e t h e r and form t h e v a r i a b l e s l a b e l e d bad h e a l t h . P e r s o n s w i t h a n i n d e x v a l u e of 3 a r e s a i d t o have moderate h e a l t h .
The e a r n i n g s e q u a t i o n s a r e e s t i m a t e d s e p a r a t e l y f o r men and women and a r e shown i n T a b l e 5 . These numbers a p p r o x i m a t e l y i n d i c a t e t h e p e r c e n t a g e change i n a n n u a l e a r n i n g s from a one u n i t change i n t h e i n d i c a t e d v a r i a b l e . The model d e s c r i b e d above i s l a b e l e d t h e b a s e c a s e i n t h e t a b l e . The r e s u l t s a r e c o n s i s t e n t w i t h o t h e r r e s e a r c h f i n d i n g s on e a r n i n g s p a t t e r n s . The r e t u r n t o e d u c a t i o n f o r women i s o n l y t w o - t h i r d s of t h a t f o r men. Whites of b o t h s e x e s a r e e s t i m a t e d t o have g r e a t e r e a r n i n g s t h a n non- w h i t e s , w h i l e t h e e a r n i n g s o f t h o s e w i t h moderate and bad h e a l t h a r e s u b s t a n t i a l l y less t h a n t h e e a r n i n g s of t h o s e i n good h e a l t h . *
The e s t i m a t e d e f f e c t of a g i n g p r o v i d e s a d d i t i o n a l s u p p o r t f o r t h e r i s i n g r e l a t i v e e a r n i n g s of f e m a l e s w i t h a d v a n c i n g a g e . The combined e f f e c t of a g e and age-squared i n d i c a t e s t h e change i n e a r n i n g s from an a d d i t i o n a l y e a r of a g e . The a n n u a l growth i n e a r n i n g s f o r men f a l l s s t e a d i l y from a p p r o x i m a t e l y 7 p e r c e n t p e r y e a r i n t h e i r e a r l y f o r t i e s t o 2 p e r c e n t a t a g e 50. E s t i m a t e d
*An F t e s t t o d e t e r m i n e i f t h e r e s p o n s e t o t h e e x p l a n a t o r y v a r i a b l e s by s e x was t h e same i n d i c a t e d s i g n i f i c a n t d i f f e r - e n c e s i n t h e i r r e a c t i o n t o c h a n g e s i n t h e s e v a r i a b l e s ; t h e r e - f o r e , combining t h e sample by s e x would be i n a p p r o p r i a t e .
Table 5. Earnings equations estimated with ordinary least squares. a
Males Females
Base case With year dummies
f
Base case With year dummiesf
Constant -3.016 -1.685 -4.628 -2.074
Education b 0.073 0.073 0.046 0.047
Age 0.401 0.371 0.425 0.320
Age squared -0.004 -0.004 -0.004 -0.003
Race C 0.282 0.286 0.550 0.550
Moderate health d -0.146
-0.152 -0.192 -0.201
Bad heal the -0.739 -0.7 30 -0.617 -0.626
Number observations 81370 81370 18707 18707
R square 0.135 0.152 0.122 0.133
a Data are the pooled cross-section, time-series observations from the earnings history of RHS respondents.
The dependent variable is the logarithm of annual earnings. All coefficients are significantly different from zero at the 99.99 percent level.
b Education is the number of years of schooling completed.
C Race is a dichotomous variable that has a value of one if the person is white, zero otherwise.
d Moderate health is dichotomous variable that has a value of one if the person has a value of three on the Duke Health Index.
'gad Health is a dichotomous variable that has a value of one if the person has a value of four or five on the Duke Health Index.
f~egression model includes a series of dichotomous variables indicating the year of the earnings observation.
e a r n i n g s peak a t a g e 5 3 . 5 b e f o r e d e c l i n i n g a t a n i n c r e a s i n g r a t e . Women's e a r n i n g s r i s e by 9-10 p e r c e n t d u r i n g t h e i r e a r l y f o r t i e s w i t h t h e i n c r e a s e d e c l i n i n g t o 4 p e r c e n t a t a g e 5 0 . E s t i m a t e d women's e a r n i n g s peak a t a g e 5 5 b e f o r e d e c l i n i n g a t a n a n n u a l
r a t e below t h a t of t h e d e c l i n e i n m e n ' s e a r n i n g s .
Adding a s e r i e s o f y e a r v a r i a b l e s t o c o n t r o l f o r t h e r i s i n g a v e r a g e wage l e v e l d o e s n o t q u a l i t a t i v e l y a l t e r t h e s e f i n d i n g s . The d i f f e r e n c e i n a g e o f peak e a r n i n g s rises t o 5 y e a r s . The r e s u l t s i n d i c a t e t h a t t h e r i s i n g r e a l wage l e v e l h a d a g r e a t e r e f f e c t f o r men. Thus, r i s i n g r e a l e a r n i n g s d u r i n g t h e s e 2 0 y e a r s f a v o r e d t h e men i n t h i s s a m p l e and r e d u c e d some o f t h e p o t e n t i a l g a i n s i n r e l a t i v e e a r n i n g s f o r women i m p l i e d by t h e e s t i m a t e d a g e - e a r n i n g s p r o f i l e .
To examine r a c i a l d i f f e r e n c e s i n r e s p o n s e t o v a r i a t i o n s i n e d u c a t i o n , a g e , and h e a l t h , e a c h s a m p l e i s d i v i d e d i n t o w h i t e s and n o n w h i t e s a n d t h e y e a r v a r i a b l e s a r e i n c l u d e d . The f o u r s e t s o f e s t i m a t e d c o e f f i c i e n t s a r e shown i n T a b l e 6 . The r e t u r n t o e d u c a t i o n f o r n o n w h i t e s o f b o t h s e x e s i s o n l y a b o u t 75 p e r - c e n t o f t h e g a i n from a n e x t r a y e a r o f e d u c a t i o n f o r w h i t e s .
The l o w e r r e t u r n from e d u c a t i o n f o r women n o t e d a b o v e i s c o n f i r m e d t o b e a b o u t t w o - t h i r d s o f t h a t o f men when c o m p a r i n g s e x e s o f t h e same r a c i a l g r o u p . Poor h e a l t h l o w e r s t h e e a r n i n g s of a l l f o u r g r o u p s .
*
Our r e s u l t s show women's e a r n i n g s p e a k i n g l a t e r t h a n m e n ' s e a r n i n g s o f b o t h r a c i a l g r o u p s . T h i s i s a c o n s i s t e n t f i n d i n g and i n d i c a t e s t h a t women w o r k e r s do n o t f a c e p r o g r e s s i v e l y l o w e r
r e l a t i v e wages a s t h e y a g e . F o r example, t h e r e s u l t s i n d i c a t e t h a t t h e e a r n i n g s o f w h i t e women peak a t 54.8 y e a r s , w h i l e t h o s e o f w h i t e men peak a t 5 0 . 3 y e a r s . The e s t i m a t e d g r o w t h r a t e o f women's e a r n i n g s e x c e e d s t h a t o f m e n ' s e a r n i n g s f o r a l l a g e s w i t h i n t h e a g e r a n g e o f t h e s a m p l e .
*An F t e s t a l s o i n d i c a t e d t h a t t h e s a m p l e s h o u l d n o t be combined by r a c e o r s e x f o r s t a t i s t i c a l a n a l y s i s . Thus, t h e most a p p r o - p r i a t e a n a l y s i s i s t o e s t i m a t e e a r n i n g s e q u a t i o n s s e p a r a t e l y f o r e a c h o f t h e f o u r d e m o g r a p h i c c a t e g o r i e s .
o o o o o o ; . i o
I I I U Y
The combined a g e e f f e c t s i n d i c a t e t h a t n o n w h i t e m e n ' s e a r n - i n g s b e g i n t o d e c l i n e p r i o r t o t h e d e c l i n e o f w h i t e men. However, t h e g e n e r a l r i s e i n t h e e a r n i n g s i n d i c a t e d by t h e y e a r v a r i a b l e s s u g g e s t s t h a t t h i s r i s e i n e a r n i n g s i s s u f f i c i e n t t o o f f s e t t h e s l o w e r wage g r o w t h a l o n g t h e e s t i m a t e d a g e - e a r n i n g s p r o f i l e . F o r e x a m p l e , when t h e y e a r v a r i a b l e s a r e i n c l u d e d n o n w h i t e e a r n - i n g s peak a t a g e 47.6 w h i l e w h i t e e a r n i n g s p e a k a t 50.3. D e l e t i n g t h e y e a r v a r i a b l e s s o t h a t g e n e r a l p r o d u c t i v i t y i n c r e a s e s a r e
c o n f o u n d e d w i t h a g e e f f e c t s , r a i s e s t h e e a r n i n g s p e a k f o r non- w h i t e s t o 54.6 y e a r s b u t f o r w h i t e s t h e a g e o f maximum e a r n i n g s r i s e s o n l y 5 2 . 8 . T h e s e d a t a s u g g e s t t h a t i m p r o v i n g l a b o r m a r k e t c o n d i t i o n s f o r b l a c k s d u r i n g t h e s e two d e c a d e s a c c o u n t f o r much o f t h e r i s i n g r e l a t i v e e a r n i n g s o f t h e n o n w h i t e s u r v e y members.
S i m i l a r f i n d i n g s a r e r e p o r t e d by C h i s w i c k ( 1 9 7 4 , p p . 1 1 6 - 8 ) , S m i t h a n d Welch ( 1 9 7 7 ) , a n d C a r l i n e r ( 1 9 8 2 ) .
The e f f e c t o f r i s i n g r e a l e a r n i n g s i s i l l u s t r a t e d i n F i g u r e 2 , which shows two a g e - e a r n i n g s p r o f i l e s f o r w h i t e a n d n o n w h i t e men b a s e d o n a g e - e a r n i n g s d a t a i n y e a r t and y e a r t + l . The g r e a t e r r i s e i n t h e n o n w h i t e p r o f i l e b e t w e e n t i m e p e r i o d s i n d i - c a t e s t h a t t h e l i f e t i m e e a r n i n g s p r o f i l e o f a g r o u p o f n o n w h i t e s w i l l b e s t e e p e r r e l a t i v e t o t h e w h i t e g r o u p p r o f i l e t h a n e i t h e r o f t h e a g e - e a r n i n g s p r o f i l e s b a s e d on e a r n i n g s i n a g i v e n y e a r . T h i s i m p l i e s t h a t t h e c r o s s - s e c t i o n a l d a t a c o u l d p r o d u c e d e c l i n i n g e a r n i n g r a t i o s f o r n o n w h i t e s w h i l e a n a n a l y s i s o f a g r o u p o f
i n d i v i d u a l s c o u l d h a v e s t a b l e o r r i s i n g r a t i o s .
V . CONCLUSIONS
Only a few p r e v i o u s s t u d i e s h a v e a t t e m p t e d t o u s e s o c i a l s e c u r i t y e a r n i n g s h i s t o r i e s t o e s t i m a t e l i f e - c y c l e e a r n i n g s . T h i s p a p e r d i f f e r s f r o m t h o s e by Rosen and Taubman ( 1 9 8 2 ) a n d R u g g l e s and R u g g l e s ( 1 9 7 7 ) by e x a m i n i n g t h e e a r n i n g s h i s t o r i e s t h a t a r e matched w i t h t h e R e t i r e m e n t H i s t o r y S t u d y . T h i s s u r v e y i s l i m i t e d t o a s i n g l e c o h o r t o f p e r s o n s b o r n b e t w e e n 1906-1911.
The b a s i c f i n d i n g s a r e i n g e n e r a l c o n f o r m a b l e w i t h t h e r e s u l t s o f o t h e r s t u d i e s u s i n g d i f f e r e n t d a t a s o u r c e s . They i n d i c a t e
U o ~ i w h i t c i n y e a r
- -
N o n v h i t e in v e a r t'
/
Figure 2. Male age-earnings profiles by race.
t h a t f o r t h i s c o h o r t t h e e a r n i n g s o f u n m a r r i e d women r o s e r e l a - t i v e t o m a l e s between 1953 and 1974. T h e r e i s no e v i d e n c e t o s u p p o r t t h e h y p o t h e s i s t h a t a f t e r t h e i r m i d - f o r t i e s , u n m a r r i e d women h a v e d e c l i n i n g e a r n i n g s w i t h a g e .
The e a r n i n g s o f n o n w h i t e m a l e s do n o t d e c l i n e r e l a t i v e t o w h i t e m a l e s d u r i n g t h e l a t e r w o r k i n g y e a r s . The t r e n d i n
e a r n i n g s r a t i o s shows some d e t e r i o r a t i o n i n t h e i r r e l a t i v e
e a r n i n g s when t h e g r o u p i s a p p r o x i m a t e l y 4 0 t o 50 y e a r s of a g e ; however, t h e n o n w h i t e e a r n i n g s r a t i o s r i s e d u r i n g t h e n e x t 10 y e a r s . The r e g r e s s i o n a n a l y s i s i n d i c a t e s t h a t i m p r o v i n g l a b o r m a r k e t c o n d i t i o n s f o r n o n w h i t e s h a s s h i f t e d t h e i r a g e - e a r n i n g s p r o f i l e upward d u r i n g t h e 1960s more t h a n t h e r i s e i n t h e p r o -
f i l e o f w h i t e s . T h i s i n c r e a s e h a s b e e n more t h a n s u f f i c i e n t t o o f f s e t t h e f l a t t e r a g e - e a r n i n g s p r o f i l e o f n o n w h i t e s . A d d i t i o n a l y e a r s o f e d u c a t i o n r a i s e t h e l i f e t i m e e a r n i n g s p r o f i l e f o r e a c h o f t h e e d u c a t i o n a l g r o u p s . An e x t r a y e a r o f e d u c a t i o n a d d s more t o t h e e a r n i n g s of w h i t e s t h a n n o n w h i t e s and o f m a l e s t h a n f e m a l e s .
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