Income Growth Factors: Error Introduced through the Application of Cohort Data

Numerous applications exist for the single dollar amount representing the present value of future, or lifetime, earnings. But 2 factors are frequently overlooked when looking to the computation of future earnings: 1. the impact of inflation, and 2. the failure to take into account general gains in productivity over the lifetime of the worker. A complex mathematical analysis of these factors is undertaken for the incomes of 6 median ages. Future growth of earnings hinge upon: 1. experience, 2. productivity, and 3. inflation. When actual data are being used to estimate future earnings, only the appropriate contributing factors should be reflected in that data.