Economic Growth

Millennials will be the first generation to earn less than their parents

Matteo Achilli (R) works with one of his assistants in his office in Formello, north of Rome July 25, 2013. Achilli, dubbed the Italian Zuckerberg by Panorama Economy, is the 21-year-old founder of Egomnia, a social network created to match companies looking to hire graduate job seekers. According to Achilli, Egomnia, which was founded in February 2012, has around 100,000 users, about 600 multinational companies in Italy as clients and a 2013 sales volume of about 500,000 euros. Picture taken July 25, 2013.REUTERS/Tony Gentile

Image: REUTERS/Tony Gentile

Joe Myers
Writer, Forum Agenda
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More bad news for millennials. New research suggests that they could become the first generation to earn less than their predecessors.

The UK-based study by the Resolution Foundation found that people under 35 earned £8,000 less in their twenties than the previous generation.

Part of the launch of a new Intergenerational Commission, the report warns of the “growing divide between a more prosperous older generation and a struggling younger generation.”

How bad is it?

The report argues that millennials (born between 1981 and 2000) have been hit hardest by the “recent pay squeeze”. This has resulted in millennials earning less in their 20s than a typical member of Generation X (born between 1966 and 1980).

Under a pessimistic scenario, where future pay follows the same trajectory as Generation X, their lifetime earnings would be around £825,000. This would see millennials also earn less than their predecessors across their entire career.

A poor start to millennials’ careers “has the potential to permanently scar their lifetime earnings [and] current economic uncertainty could put further downward pressure on their future pay.”

What’s to blame?

Some of this ‘pay squeeze’ is the result of the financial crisis, as young people entered the labour market during a downturn.

 Median pay during the downturn by age: UK, 2009-2015
Image: Intergenerational Commission

But, the report also suggests that progress had stalled before the crisis. As the following chart shows, Generation X experienced slower growth compared to the baby boomers. Millennials born between 1981 and 1984 (who therefore entered the workforce before the crisis) experienced no growth.

 Median earnings at age 25 compared to the previous five-year cohort: UK, 1981-2009
Image: Intergenerational Commission

“Generational inequality risks becoming a new inequality for our times, and nowhere is that clearer than on pay,” said Torsten Bell, Director of the Resolution Foundation in a press release.

What about the rest of the world?

An investigation by The Guardian earlier this year found that inequality is rising between generations across Western economies.

Millennials are earning much less than the national average, according to data from the LIS (Luxembourg Income Study): Cross-National Data Center.

With the exception of Australia, workers aged 25-29 are earning up to 19% less than the national average. Conversely, prosperity amongst pensioners has risen.

 Pensioners have seen significantly higher disposable income growth than young people in almost every wealthy country over the last few decades
Image: The Guardian

“The situation is tough for young people. They were hit hard by the Great Recession, and their labour market situation has improved only little since,” Angel Gurría, Secretary-General of the OECD, told The Guardian in March.

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