Baby Boomers Are Just Hitting Their Earnings Stride

Americans are understandably depressed these days. Not only did the recent recession cut a wide swath through jobs and industries that were almost unscathed in previous downturns, but it also heightened awareness that the purported boom of the 1980s lifted average household incomes by just 10% in real terms. And it has raised fears that the 1990s could be even worse.

According to a new study by the Conference Board, such fears neglect a critical development: Demographic and social trends that worked to hold down household incomes in the 1980s will shift dramatically in the 1990s, producing a far healthier rise in family incomes. This will happen even though economic growth is expected to slow from 2.6% a year in the 1980s to 2.3%.

Fostering this change will be the movement of the entire baby-boom generation into its peak earning years. In the 1980s, notes Conference Board consumer economist Fabian Linden, baby boomers were still crowding the ranks of young households with heads under age 35. However, in the 1990s, this group will shrink by 15%, while those in the 35-to-55 age bracket will surge by 27%, and older households will just keep pace with total households.

Although growth of total households will slow sharply to 10% from 15% in the 1980s, the slowdown will be concentrated among young households and senior citizens, whose average incomes are low. Households in their peak earning years will actually take off. Indeed, households headed by 45- to 55-year-olds--whose incomes run 34% above average--will explode by more than 40%, helping to boost average real household incomes by 15% during the decade.

A major role in this drama will be played by working women, whose full-time incomes have jumped from 60% of men's wages a decade ago to 72% today. Because young working men and women tend to put off marriage, household growth in the 1980s was dominated by young singles, and married households accounted for only a quarter of new households. But in the 1990s, as the last of the baby boomers wind up at the altar, husband-wife families will account for more than 60% of household growth--and will foster a surge in affluent two-income households (chart).

As for poorer households with incomes under $15,000 (in 1991 dollars), they not only will decline in number but also will fall from 25% of total households to 22%, as millions of households move into middle-income and affluent brackets. "Just as demographic factors held down income growth in the 1980s," says Linden, "they will give it a powerful push in the years ahead."

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