It allows Americans to enjoy ever-rising living standards over their lives and helps them pay some big expenses, like their children’s college tuition

One Safety Net Is Disappearing. What Will Follow? | By DAVID LEONHARDT | Published: April 4, 2007

Over the years, American companies have built a pretty extensive social safety net for their workers. The clearest examples of it are pensions and health insurance, which became popular during the wage freeze of World War II, when employers were looking for creative ways to give raises. Today, the United States is the only major country in the world where the private sector plays such a big role in caring for the old and the sick.

But the corporate version of the welfare state is not just about retirement and health care. Another, much less obvious, piece of it is the steadily increasing pay that most workers receive over the course of their careers. All else equal, a typical worker in his early 60s makes about 50 percent more than a worker in his early 30s.

This arrangement produces some enormous benefits for society. It allows Americans to enjoy ever-rising living standards over their lives and helps them pay some big expenses, like their children’s college tuition and their parents’ elder care, that start to hit in middle age.

In strictly economic terms, however, paying people based on their age is a bit skewed. Sixty-year-olds are indeed more productive than 30-year-olds, studies have shown, but not 50 percent more productive. Experience isn’t quite as valuable as we might like to believe. In effect, most companies are underpaying their younger workers and overpaying their older ones. ...