Economists’ standard model assumes that improvements in total factor productivity (TFP) raise
the marginal product of labor for all workers evenly. This paper uses an earnings dynamics
regression model to study whether, in practice, older workers benefit less from TFP growth than
younger workers. We utilize panel earnings data from the Social Security Administration’s
Continuous Work History Sample. The data include workers of all ages, and we use annual
figures for 1950-2004. Our first specification relies on BLS measurements of TFP. Our second
model develops a new TFP measure using a principal components analysis. We find that
although the earnings of younger workers track TFP growth 1-for-1, the earnings of older
workers do not: we find, for example, that a 60-year-old male’s earnings grow only 85-90% as
fast as TFP. Nevertheless, our analysis implies that in an economy with an aging labor force,
gains from experience tend to outweigh older workers’ inability to benefit fully from TFP
improvements.