The 20th century growth story that has seen each generation enjoy higher incomes than the one before them has ground to a halt in nearly all advanced economies in the 21st century.
However, the UK stands out for having experienced a ‘boom and bust’ cycle where strong income and housing gains for post-war generations have failed to materialise for millennials. This is according to a major report published today by the Resolution Foundation.
Cross countries,the fifteenth report for the Foundation’s ongoing Intergenerational Commission,looks at household living standard changes for different generations across eight high-income countries.
It finds that the global financial crisis has had a profound effect in halting generational income progress. On average, across the countries featured in the report, millennials in their early 30s have household incomes 4 per cent lower than members of Generation X at the same age. In comparison, the incomes of Generation X in their early 30s were 30 per cent higher than the baby boomer generation before them.
However, while this overall story of stalled progress is common throughout advanced countries, the report also highlights a number of country-specific challenges.
The UK stands out, along with Spain, as having previously enjoyed a long ‘boom’ in generation-on-generation progress on household incomes that has since gone ‘bust’ for millennials.
When in their early 30s, generation X (born 1966-80) were 54 per cent better off than the baby boomers (1946-65) were at the same age, this pace of growth hasn’t materialised for millennials (1980-2000); the incomes of those in this generation who’ve already reached their early 30s are just 6 per cent higher than generation X’s at the same age.
The UK also stands out for combining a sharp slowdown in income progress with a major generational reversal on housing. Home ownership rates, compared at ages 45-49, surged by 29 percentage points between the greatest generation (born 1911-25) and the baby boomers.
This generation-on-generation progress has been all but wiped out for millennials whose home ownership rate in their late 20s, at 33 per cent, is half that for the baby boomers at the same age (60 per cent). Falling home ownership for young people in their late 20s is also found – albeit to a lesser extent – in Australia (a 12 percentage points fall from boomers to millennials) and the US (a 6 percentage point fall).
UK millennials have paid for the financial crisis through their pay packets, rather than with their jobs. The scale of the pay squeeze for those aged under 30 – a 13 per cent fall in real terms – is surpassed only by Greece, where earnings have fallen by 25 per cent. The UK pay squeeze for the under 30s was twice as big as the squeeze faced by those in their 50s – a bigger age divide than in any other country.
Southern Europe has experienced a millennial jobs crisis, with the youth (15-30) unemployment rate more than doubling in Italy, Spain and Greece between the early 2000s and the years following the financial crisis and remaining above 25 per cent today. In contrast, youth unemployment in the UK (at 9 per cent) is almost as low today as it was during the 2000s, though there has been a rise in atypical working, such as zero hours contracts and self-employment.
The US and Germany, two of the highest-income countries covered by the report, have seen minimal generation-on-generation gains in recent decades. The report finds that typical incomes in the US for those in their late 40s are no higher for those born in the late 1960s than they were for those born in the 1920s – a trend long preceding the financial crisis and being driven in part by sustained increases in inequality during this period.
In Norway and Denmark cohort-on-cohort earnings progress has continued unabated throughout the crisis years. While Norway avoided a deep recession, Denmark has achieved this progress despite experiencing a similar sized fall in GDP per capita as the UK during the crisis.
The Foundation says that there are plenty of lessons that countries can learn from each other about tackling the millennial living standards crisis. From building enough homes and better regulation of the housing market, to flexible labour markets, active labour market policies, and what unions can offer young people, learning from other economies can help with getting the story of generational progress on living standards back on track.
Daniel Tomlinson, Policy Analyst at the Resolution Foundation, said:
“It’s no secret that the financial crisis hit the vast majority of advanced economies hard, holding back millennial income progress in counties around the world. But only Spain echoes the UK experience – a ‘boom and bust’ income cycle where significant generation-on-generation gains for older generations have come to a stop for younger people. The UK also stands out for combining this lack of income progress with major declines in home ownership for today’s millennials.
There have been big differences in how advanced economies have developed since the crash, and there are lessons for the UK to take from the winners and losers. Southern Europe’s jobs crisis has hit millennials hard. By contrast Norway and Denmark – despite the latter taking a harder hit to its GDP post-crisis than the UK – haven’t experienced any damage to generational earnings progress.
“From house-building to how we regulate our labour markets, there are a wide range of lessons for countries to learn and pitfalls to avoid from considering the experience of other nations. Britain may have avoided the shocking levels of youth unemployment seen in Southern Europe, but it’s still a long way off providing the progress for young families that they and their parents had come to expect.”