In finance, an asset is worth more when it’s more predictable, and wages are much less variable than they used to be. Before, wages swung around as people changed jobs and worked more hours. But over time, people changed jobs less frequently and worked less. This helps explain why wages have stagnated, because in the past, increases were partly driven by more moving around and less secure positions. An asset that pays predictable income each year is more valuable than a riskier asset because knowing how much you’ll be paid (or have to pay) each year is desirable, whether you are an investor or a worker. This is why junk bonds cost less than U.S. Treasuries. So when you account for less risk and more stability, a millennial’s reliable $1 wage in 2021 is worth more than an erratic boomer wage in 1991 that might swing from 50 cents to $1.50.
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July 16, 2021
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