This is why young people can’t have nice things

Today’s young people are less likely to booze, take drugs or commit crimes than previous generations. They are sober, serious and staid. Socially, their maturity belies their years. But as a new report makes clear, the Great Recession has made them economically juvenile: in receipt of more support from the state and from their parents. Young people are growing up faster and slower than their forebears.

In their annual survey on living standards in Britain, the Institute for Fiscal Studies and the Joseph Rowntree Foundation suggest that the fastest growing type of inequality over the past five years has been between the young and the old, rather than between the rich and the poor or London and the rest of the country. (There is of course overlap here, and the IFS says the rich-poor divide will soon widen.) This rupture promises to affect the future of Britain’s economy for generations to come.

Twenty-somethings’ toils have been well documented but the report provides fascinating new details about what happened to young people in the labour market.

As the chart below shows, the employment rate for 31-59 year-olds stood up well over the past five years. Contrast that with the rates for 20-somethings, even after one removes those in full-time education, as IFS-JRF do here. The decline began before the onset of the recession but accelerated around 2009.

People in their 20s also experienced sharper falls in their earnings. The chart below shows the after-inflation changes in weekly earnings and hourly wages for each age group over the past five years. In the red box I have highlighted the average drops in earnings and wages for 22-30 year-olds versus those for employes aged 31-59.

It is not only older workers who are doing better, according to IFS-JRF. In perhaps its most eye-catching statistic, the report notes that after housing costs are taken into account, “median income among pensioner households overtook that of working-age households in 2009–10 for the first time since records began in 1961″.

Returning to the average decline in young people’s incomes, the report notes that had it not been for the cushioning of benefits and tax credits, and for that of parents, then the drop would have been vertiginous. The share of 20-34 year-olds living with their parents has increased over the past five years to more than one quarter. In households where a young person is living with their parents, parental income has increased by about 14 per cent, whereas as we have seen, their kids’ pay has not.

We don’t know how much of this is used for financial support but the report shows data that suggests, as one might expect, that young people living with their parents are less likely to report financial struggles if they are living with richer parents. If it weren’t for the bank (and hotel) of mum and dad then things would be much worse.

The fact that young workers take a battering during a recession is to be expected. It fits with what we know about previous downturns and how they can “scar” young people, i.e. they can reduce employment chances and incomes way into the future.

What is different – and especially worrying – about this time is that today’s 20-somethings are in many ways doing worse than the generation before them. The chart below compares real average incomes for young people born between 1983-87 with those from people born in earlier cohorts when they were in their 20s. As you should be able to see, the black line for the 83-87 cohort is lagging behind.

This trend holds for graduates, as well as those with only A-levels or GCSEs. Indeed for recent 20-somethings with only GCSES, not only are they behind previous cohorts but they are making no wage progression at all in the labour market. That is, unlike their better qualified peers they are earning no more at 25 than at 22. One of the more stupid things some people say about this generation is that it shows the pointlessness of university; the wage premium on average still very much applies.

At times it seemed possible that the recession and the response to it might lead to a rethink among Britons about the relationship between rich and poor, and/or between different parts of the county towards the capital. Might it be, though, that the crisis ends up having a bigger affect on how generations see and relate to each other? The lazy stereotype of the poor pensioner scrimping in her dotage was long overdue a rethink. This is a good thing. Less promising is the undermining of the idea that the previous generation will seamlessly do better than the one before it.