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Blame the Income Gap on Demographics, Not Capitalism

Joseph Mason

Joseph Mason is the Moyse/LBA Chair of Banking at the Ourso School of Business at Louisiana State University and a senior fellow at the Wharton School of the University of Pennsylvania.

Chanting "We are the 99 percent," Occupy Wall Street has spent the past several months railing against perceived injustices of income inequality. Special interest groups have latched onto this concern by pointing fingers at the private sector.

Yet, an examination of recent demographic trends in age and income suggests that market dynamics may not be the main cause of changing disparities in U.S. income. In fact, the notion of inequality that many politicians are currently propagating is a demographic problem, not one of capitalism run amok.

America is graying as Baby Boomers hit middle age and near retirement. As we have known for some time, this generation accounts for a huge bulge in our population.

[See a collection of political cartoons on Occupy Wall Street.]

Individuals do not hit their peak salaries until the tail end of their careers, and the peak of wealth accumulation happens around the age of 63, just before retirement. Many boomers are hitting the apex of their careers today, which--due to their hefty percentage of the population--skews income and wealth distributions. While 18- to 44- year-olds are still working to hit the top rung of their careers, the Baby Boomers are already there and are making the money to prove it.

But what about the income variances within generations? Across all of the age demographics, income distribution has remained relatively stable since 1989.

[See a collection of political cartoons on the economy.]

Boomers are set in their careers and making their best salaries yet. In contrast, young professionals today often delay the start of their careers in order to gain higher levels of education, which puts them in a hole compared to older generations. They are also delaying marriage and children, which means that they do not have the ability to take advantage of the economic benefits of marriage and are paying for the costs of raising children farther into their careers than their predecessors. Thus, the culture of the generations plays a large part in how much income each age demographic earns.

We will have to wait and see if the greater education investments and marriage delays will have an even higher income return for future generations. But the demographics of income and wealth inequality will go away with the Baby Boomers, and should not be the subject of misguided election-year politics.

--See a collection of political cartoons on the budget and deficit

--See a slide show of Mort Zuckerman's 5 Ways to Create More Jobs.

--See a slide show of 5 bright spots in the U.S. economy.

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