Millennial wage gains: Too little, too late?

A 23-year-old works at his desk at Rally Software Development in Boulder, Colo.
Cyrus McCrimmon | The Denver Post | Getty Images
A 23-year-old works at his desk at Rally Software Development in Boulder, Colo.

After years of frustrating job searches and low-wage work, millions of millennials are finally catching a break.

But despite recent data pointing to an improved job market and a pickup in wages, this generation of younger workers will feel the economic impact for the rest of their lifetimes. That's the conclusion of a series of economic studies, showing that lost wages early in a career can reduce overall earnings for a lifetime.

The latest study comes from the researchers at the New York Federal Reserve, who crunched more than 200 million pieces of earnings data from 1978 to 2010. What they found was that younger workers who enter the workforce in lower-wage jobs will have a hard time catching up later in their careers.

"Across the board, the bulk of earnings growth happens during the first decade," according to New York Fed economists Fatih Guvenen, Fatih Karahan, Serdar Ozkan, and Jae Song.

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That's largely because as your income rises, your raises typically get smaller. And because you're less likely to find another job that pays substantially more as you get older, you're more likely to stick with the job you have, even if your income rises slowly, the researchers concluded.

"As the attractiveness of job offers decline with the current wage, more job offers will be rejected, and therefore the frequency of job-to-job transitions will also decline with age, implying that most wage changes will be small (within-job) changes," they wrote.

That's not good news for the millions of millennials who entered the workforce during the Great Recession and in its aftermath got off to a slow start up the income ladder.

From 2007 until the pace of hiring picked up last year, the jobless rates for millennials topped other age groups, even among those with freshly earned college and advanced degrees. Many were forced to start their careers in lower-wage jobs, slowing their income progress and dampening their lifetime earnings.

It's not the first time a recession has sidelined younger workers and depressed their earnings later in life. In a 2010 study, Yale University economist Lisa Kahn looked at the long-term impact on the earnings of college graduates between 1979 and 1989, and found "large, negative wage effects of graduating in a worse economy which persist for the entire period studied."

Much like the severity of the Great Recession compared with past downturns, the latest wage gap for younger workers has been deeper than in the past.

Recent college graduates also saw slower wage growth after the 2001 recession, according to a study last year by San Francisco Fed researchers Bart Hobijn and Leila Bengali.

But "the wage gap in the current recovery is substantially larger and has lasted longer than in the past," they found. "The larger gap represents slow growth in starting salaries for graduates, rather than a shift in types of jobs, and reflects continued weakness in the demand for labor overall."

Not all millennials, though, will feel the Great Recession's lingering impact of high unemployment and stalled wages for decades, according to the New York Fed researchers. While the first decade is critical for the majority of wage earners, that doesn't hold for those who land on the top of the income ladder.

For someone with a median income, their lifetime earnings grows by 38 percent from ages 25 to 55. For those in the 95th income percentile, earnings grow by 230 percent.

And a 25-year-old in the 99th percentile can expect their income to rise by almost 1,500 percent, a finding that's consistent with a number of other studies showing the increased concentration of income among the wealthiest Americans.