Why are Millennials earning less than previous generations?
Millennials are likely to be the first generation to earn less than previous generations. The average 27 year old today is earning the same amount that the average 27 year old earned a quarter of a century ago. So says a report by the think tank The Resolution Foundation, which found that millennials typically earn or have earned £8,000 less in their 20s than someone from Generation X, the preceding generation, would have earned.
In general, working life has been a lot harder for millennials (millenials are defined as those being in the 15-35 age bracket). Many millennials were either starting out on their careers or had only recently established themselves in the working world when the financial crisis of 2009-9 hit. Then there was the slow recovery and shifting in the jobs market. This has all impacted both on job prospects and on salaries.
However, according to this new report, called ‘Stagnation Generation: The case for renewing the intergenerational contract’, earnings were already on the slide, even before the 2008 global financial meltdown. The Resolution Foundation analysed the earnings of a typical 25-year old in the report. It found that older millennials – those now in their early to mid 30s, but who were 25 before 2008 – were the first to earn less than those born five years before them.
Those who entered the workplace during or after 2008 have faced even tighter pay constraints and job prospects. The report says that period of financial pressure may have permanently blighted the earnings potential of the millennial cohort.
The report was released to coincide with the launch of an Intergeneration Commission, an initiative convened by The Resolution Foundation to explore issues of intergenerational fairness – of the lack of it. “Fairness between the generations is something public policy has ignored for too long,” says David Willetts, executive chair of the Resolution Foundation and chair of the Intergenerational Commission. “But it is rising up the agenda with the prime minister, politicians of all parties, business leaders and others, rightly identifying it as a growing challenge.”
The new prime minister, Theresa May, has also spoken of the growing gulf between a “more prosperous older generation and a struggling younger generation”.
For millennials are being hit with a double whammy. Not only are they likely to learn less than previous generations, they also have to contend with a shortage of affordable houses, rising house prices and rent hikes. This has made it much harder for them to gain a foothold on the property ladder, forcing many into rented accommodation for years. According to the Resolution Foundation report, the average millennial has ploughed £44,000 more into rent by the time they hit 30 than the baby boomer generation. A baby boomer aged 30 was 50% more likely to own their home than a 30-year old millennial.
What else does the report tell us about the financial situation of millennials compared to the previous two generations, baby boomers (born in the late 1940s to early 1960s) and Generation X (early 1960s to mid 1970s)?
First of all, the optimistic forecast. Should the future pay of millennials enjoy a rapid increase after its inauspicious start, and keep rising in the way that it did for baby boomers, then the lifetime earnings of the current younger generation should be about £890,000. This would mean that their generational pay progress would be just 7% over that of Generation X and it would be a third of the size of the pay progress that Generation X can claim over baby boomers.
The more pessimistic projection for millennials is that their future pay will follow the path Generation X has trod, leading to lifetime earnings of £825,000.
This second scenario is by no means unlikely says The Resolution Foundation, if the short term economic situation dips as a result of Brexit and productivity continues to remain weak. Pay would of course then be affected.