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I think in all societies it is usually the case that when you start a job you are usually paid less than a person in the same position who is about to retire. I'm not an economist by any means, but I was thinking today that it should be the other way round. If younger people had more money, they would invest more. They would buy houses, cars, go on holidays... The older you get, the more settled you are and the less inclined you are to make big investments so that the money does not circulate.

Would that make economic sense?

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  • $\begingroup$ THe fact that the marginal propensity to consume is higher for older vs. younger people should not factor in the demand or supply curve for labour. $\endgroup$ Mar 1 at 13:38

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Older people earn more money not because it is some sort of tradition, but because marginal productivity and consequently wage is, among other important factors, determined by level of experience person has. Experience is typically increasing in age, hence why you observe older people are typically paid more.

In order to do what you propose government would have to force companies to underpay older people, so portion of their product can be distributed to the younger people, which would significantly distort labor market.

Moreover, unless the particular person saves money by hiding it under the mattress which is exceedingly rare, the money still circulates in the economy. The money people put in bank does circulate, even if it’s just deposited on deposit account. Hence it is unclear how this would increase money circulation.

Furthermore, most people usually live in family where people cross-subsidize themselves. For example, parents usually give money to their children or at some points children start to subsidize aged parents. A priori it’s unclear if this would have any effect at all because older people might as well just respond by giving less to their children, leaving average income of younger people unaffected while creating distortions.

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There are a few things to unpack here, so let's do this point by point.

  • The wages an employer offers are based on a combination of productivity and investment in that person as a worker. Hope this isn't too lazy an example, but consider a salesperson who is given particular targets. They receive bonuses for sales, but it does not matter how old or young that person is because the company needs the consumer to be committed to the product, not the salesperson. Wage premiums are also paid based on the geographical location of a job and a variety of other factors which have only spurious correlation with age.
  • Older persons have a much higher marginal propensity to consume than young persons. They are more likely to be paying mortgages, paying for medical treatments, and buying consumer products. This has been found to be both a theoretically attractive model [https://www.economicshelp.org/blog/27080/concepts/life-cycle-hypothesis/]as well as empirically true [https://www.bls.gov/cex/research_papers/pdf/ws2018-marginal-propensity-to-consume.pdf].
  • Importantly, consider for a moment a world in which your vision is a reality: the younger workers are paid more and the older workers make decisions on who the employers will hire and retain. The situation would seemingly evolve according to some form of auction theory. The older workers will agree to allow the younger workers to remain in high-wage jobs in exchange for wage concessions, most notably to the older workers or to the firm. If you believe in extreme applications of free-market economics, this research paper and those referenced by it have nice theoretical treatments of the concept. [https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=2fb6b8bbcb4287266b4f06ae30dc826a75dc1dc0]
  • Last, you might consider the political implications of demographics. Between 1998 and 2023, the cost of (goods) consumption as measured by the U.S. GDP Deflator rose only 125%. Compare that with 155% from '48-'73 and 242% from '73-'98. [https://www.bea.gov/data/prices-inflation/gdp-price-deflator] The purchasing power of persons buying goods has thus eroded little since 1998, a result borne of trade, fiscal, and monetary policy. Consuming people are happy people, has been the mantra. If this trend were to reverse and there was an extended period of high inflation combined with high interest rates, there might be good reason for policymakers and businesses to focus more on younger generations, driving up their reservation wages and leaving older generations contending with lower demand for their labor. Given current fertility rates and the size of the population under age 10 in the U.S., this seems unlikely.
  • Last last, emerging technologies and an answer that flips 1muflon1's first paragraph on its head. Sure there will be empirical research on this idea in future years.
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