Many millennials are worse off than their parents

Millennials (born in the 1980s and mid-1990s) are followed by Generation Z (“zoomers” born in the late 1990s and early 2010s) into adulthood. These two generations are the most numerous in the world (and in the last few years, the zoomers have begun to dominate the global population). And in comparison with the previous age cohorts, they turned out to be the “losers”.

Compared to previous generations, millennials and buzzers are more educated people, they study longer and enter the labor market later. They are accustomed to ideological, cultural, and consumer diversity and tolerance, to total digitalization and global connectivity (generation Z does not know the world without the Internet at all), perceive the world through the prism of modern technologies.

Many people from the younger part of millennials and elders in Generation Z (that is, those born in the second half of the 1990s - early 2000s) are characterized by a higher inclination than their parents to the values ​​of self-realization and participation in volunteer activity, concern with global problems. Many have a strong value for collaboration and equality. They place great emphasis on finding and building their own identity, respecting the identities of others; in comparison with previous generations, they are less religious and more tolerant. In this generation, whose childhood and adolescence coincided with the beginning of the political polarization of the world and the global financial crisis, there are many pragmatists who know how to clearly set a goal and find ways to achieve it.

At the same time, young people are characterized by increased anxiety and depression, they realize that their generation will have to face serious global challenges - from climate change and the development of artificial intelligence to genetic engineering and the accompanying difficult ethical dilemmas. They are not satisfied with modern states, believing that they can do much more to solve problems that cannot be solved at the level of individuals and businesses. This discontent is exacerbated by economic problems, which have exacerbated when the previous generations were "at the helm", and which will be solved by young cohorts.

Didn't mature on time

Wealthy people usually get closer to old age, gradually accumulating assets and paying off debts. For example, in the UK, the median wealth level of a person aged 25–34 is £ 66,000, and at 55–64 years of age, it reaches its lifetime maximum of £ 416,000. At the age of 25–34, only 10% of people are in the top 50% of the population in terms of accumulated assets, and among those who are 55–64 years old, this figure is 70%. This is an objective intergenerational inequality - but now it is greatly complicated by the difficult economic situation of the past 10-15 years.

While boomers and Gen X in the US and Europe grew up in relatively good times, the childhood of the boomers and the entry of millennials into the labor market coincided with the Great Recession. It officially ended in 2009, but in 2016 the net assets of the average American family were still 30% lower than in 2007. Both the younger millennials and the Zoomers have seen protracted stagnation, declining incomes for their parents, and their tense struggle with the credit crunch, and older millennials have faced it personally.

For many, this recession is not yet really over, and now it has been replaced by the coronavirus crisis: this year, for the first time since 1998, the number of the world's poor will grow. In terms of income, the corona crisis hit young people harder because of a lockdown that halted the service sector. Unemployment among 15-24-year-olds in the USA, Great Britain, Australia, Canada is much higher than its average level. In the US, 28% of Americans aged 16-24 now do not work or study, up from 12% at the beginning of this year.

The coronavirus epidemic has only exacerbated the negative trend in employment and income of the younger generations. Low incomes at the start of a working career have a prolonged effect: they affect subsequent earnings and the amount of pension savings. Both the income and the savings of millennials are significantly lower than the previous two generations of their age. They later create families, have children and buy houses after their parents. And later they will receive an inheritance that will give a significant increase in assets: the parents of millennials live longer than previous generations.

The problem is not only in the sluggish state of the labor market since 2007. Since the time when the parents of Millennials and Zoomers (Boomer Generation X, respectively) entered adulthood, the labor market and the economy as a whole have changed dramatically. The two previous generations in developed countries during their lives have seen mainly an increase in their well-being. However, over time, inequality among people of the same generation increased, and social mobility fell. Intergenerational mobility also gradually slowed down - income growth from generation to generation.

As a result, in the United States, 92% of people born in the 1940s have higher incomes than their parents, according to Raj Chetty of Harvard and his co-authors, and among those born in the 1980s, incomes are higher than those of their parents. already only half. William Gale of the Brookings Institution and his coauthors obtained similar conclusions: the generation born in 1981–1996 in 2016, that is, at the age of 20–35, was poorer than the previous generation, who was at the same age in 1989 –2007

Now in the United States, millennials have 41% less net assets than those of their age in 1989, real incomes 20% less than the baby boomer generation in 1980, and the likelihood of losing half of their income is twice as high. At the same time, millennials have large debts (see incision), and they are unlikely to start saving soon: in comparison with their parents and grandparents, millennials are on a much lower trajectory of wealth generation.

This long-term negative economic experience is “embedded” in the youth's perception of economic reality: the prospects are uncertain, there is no confidence in prosperity, but there is a strong demand for social justice. A similar situation is repeated with the buzzer.

The problem of public debt and the imbalance of state budgets, pension systems, and health care systems add to the uncertainty. The boomer generation that started working 35-50 years ago maybe the last to receive a good pension.

Vulnerability factors

The changes in the economic landscape that the two younger generations are entering are not limited to the protracted recession and coronavirus crisis. Young people increasingly have to pay for their education: for example, in 1970 in Great Britain only 8.4% of students paid for university education, and in 2000 - already 33%. This trend is visible in other countries as well. At the same time, the share of people with higher education has increased - among young people it is higher than in older generations. At the same time, the growth of spending on education and housing costs, along with the slowing growth of wages, leaves at the disposal of today's 25-40-year-olds less money than their peers 20-40 years ago.

After the recession, mortgages were no longer available in developed countries. Britons 25-29 years old have fewer homeowners than their peers 5-10 years ago. Of those born in the late 1980s, only 25% owned a home at age 27, while 33% were homeowners five years earlier at that age. In the United States, the situation is very similar.

In 2019, millennials owned only 5% of American homes; the share of the previous generation at the same age accounted for 15%. Back in 2005, among Americans under 35, 43% had their own homes, and in 2015, only 31%. Instead of mortgages, millennials accumulate consumer loans and student loans. Economic difficulties turn millennials into a “lost generation”: they are already too old for a youthful bohemian life, but they do not have the funds to acquire housing and a family.

Another factor of vulnerability, which was highlighted by the recent unrest in the United States: among millennials, compared with previous generations, racial diversity and the proportion of ethnic minorities are higher. And they are poorer, and in this dimension, the inequality is even more acute; it, too, will work for the economic plight of millennials and buzzers. In 1980, 78% of the boomer generation in the United States was white, and now it is 57% of the millennials. The young white American has net assets of $ 26,100, Hispanic American $ 14,700, and African American $ 5,700. Racial inequality in the accumulation of wealth among young people is 1.5–2.6 times higher than the level of income inequality.

Mobility level

Inequality would not be a big problem if mobility and income levels rose. But this is not the case, and in such a situation the problem of inequality is felt much more acutely. Inequality is also preserved by the fact that young people from low-income families not only invest less in education but also receive a reduced “bonus” from these investments (their salaries do not grow so quickly with the level of education). When social lifts break down, inequality stagnates.

How much does the well-being of children increase due to the success of their parents? Not very strong, demonstratedRaj Chetty, Emmanuelle Saez of Berkeley, and their co-authors. Moving parents 10 percentage points up the income distribution ladder increases the well-being of their children three times less - only 3.4 percentage points. Therefore, attempts to reduce the level of inequality through redistribution cease to have an effect after a couple of generations. Mobility is also very different from region to region. For example, in San Jose (a large city in California, the center of Silicon Valley), the probability that a child from a family in the bottom income quintile will reach the top quintile is 12.9%, and in North Carolina ("Tobacco State") - only 4.4%. As a result, Chetty shows, intergenerational mobility is higher where income inequality and territorial segregation are lower, education quality is better, social capital is greater, and families are more stable.

Low social mobility, or inequality of opportunity, also contributes greatly to inequality. Even in Europe (Germany, France, Great Britain, and Italy), where mobility is now higher than in the United States, it explains, according to a study by Italian economists, 30-50% of the magnitude of inequality. At the same time, in recent decades, mobility has been declining both in the United States and in Europe.

Inequality of opportunity is due to the wealth, education, and place of residence of the parents, gender, ethnicity, etc. It is this part of inequality that is "dishonest": it is caused not by a person's personal efforts, but by circumstances that he cannot influence. Where inequality of opportunity is higher (and social mobility is lower), its magnitude explains a large share of total inequality.

While economic mobility has been declining in Europe, it has remained stable in developing countries over the past half-century. Economists at the World Bank have found this out by building an intergenerational base of inequality of opportunity for 96% of the world's population. Of the generation of people born in developing countries in the 1980s, only 15% of those whose parents were in the bottom half in terms of income made it to the top quartile, and two-thirds stayed in the bottom half.

There are also reasons for optimism: across the world, the gender component of inequality is rapidly decreasing, and educational mobility is also growing. But the dynamics are very different from country to country. So, if in the countries of East Asia the level of education of 80% of adults is higher than that of their parents, then in sub-Saharan Africa - only 12%. Over the past half-century, intergenerational mobility has slightly increased in East Asia, Latin America, and the Middle East, in Eastern Europe and Central Asia - it has decreased, but in Africa, it has not changed. The poorer the economy and the less resilient it is, the higher the inequality of opportunity.

High de facto inequality, along with low social mobility, inequality of opportunity, and stagnation in real incomes, determine the current economic position of millennials and, in part, the zoomers. These factors are the reason why young people now later reach the "markers of adulthood": get married, buy a house and have children. They also influence the views of young people on economics and politics. The expressions "okay boomer" (a meme used by teens to mock outdated views of older generations) and "generation of snowflakes" ( Generation Snowflake- the ironic name of the generation of people who became adults in the 2010s) fixes the destruction of the “intergenerational contract”. Millennials' financial commitments exceed their capacity, and conditions for social reproduction are deteriorating, while the boomer generation is doing much better economically: this will inevitably lead to changes in global economic policy when the current young begin to exert a decisive influence on it.