The generation gap isn’t about wages – it’s about who has a job at all

The generation gap isn’t about wages – it’s about who has a job at all

The economic gap between old and young is becoming a political concern in many countries. Ever since the “baby boomers” generation, young people have expected to out-earn their parents. But this is no longer automatic. New research explores what is driving intergenerational inequality and warns of a “structural generational divide that will not fix itself”

In a new study published in the European Economic Review, economists Roberto Pancrazi (Warwick) and Gabriele Guaitoli (UAB) reveal that there is more to rising inequality between young and old than wage levels alone; that while in rich countries, older workers have been pulling ahead of younger ones, in middle-income countries the opposite is happening; and warn that richer countries are facing a permanent generation gap that will not self-correct.

Over the last 15 years, on average in rich countries the income advantage of individuals aged 55-64 compared to young people has more than quadrupled – from 6% in 2004 to 26% in 2018.

“This is not only a question of salaries,” explains Professor Pancrazi. “Comparing hourly pay alone misses most of the story – the gap is largely driven by who has a job at all. Over this same period, the employment rate for older workers has risen 23 percentage points while young people are struggling to gain a foothold in the labour market. This explains about two-thirds of the widening gap."

“What’s giving older workers the advantage? Our main finding is something we call “skill congestion,” explains co-author Dr Gabriele Guaitoli. “We find that, in richer countries, older generations have almost caught up with the young in education — so they now compete for the same skilled jobs, and end up crowding younger workers out. The effect ripples through the whole job market. Pay and openings for the young go down, while they rise for the old.”

To understand the drivers of the age-income gap, the researchers studied data from 32 countries and compared the total take-home income of people aged 55–64 with those aged 25–34 from 2004 to 2018. This offers a far more complete picture than comparable research to date. They find that in richer countries the older group pulled ahead over time; in middle-income countries the young started in a similar place but gained ground.

Alongside skills congestion, other factors driving the gap include labour preferences, skill-biased technical change, experience premia, transfers (pensions and benefits), and demographic ageing. The key issue here is that these mechanisms lift young and old alike, while skills congestion permanently restricts young people’s lifetime earnings.

The study provides vital insight to policymakers. If the age-income gap is simply a factor of lifetime wages increasing to reflect higher skills and greater productivity in older workers, then young starters will eventually catch up as they advance in their careers. But if the gap reflects intergenerational competition in skills, the current generation of young workers face being trapped in lower-skilled roles, with permanently lower lifetime earnings than their predecessors – a structural generational divide with no self-correcting mechanism.

• Gabriele Guaitoli, Roberto Pancrazi. Age-income gaps: The role of skill congestion, European Economic Review, Volume 188, 2026 105408,ISSN 0014-2921. https://doi.org/10.1016/j.euroecorev.2026.105408.