The Unluckiest Generation: What Will Become of Millennials?
Coming of age in a recession has set back Millennials for decades. The good news? In the age of abundance, they could turn out to be pretty great decades, anyway.
The nearly 3.7 million American babies born in 1982 weren't special, except to their families. But in the eyes of demographers, they were categorically different from the 3.6 million Americans born in 1981. They were the first members of a new club: Generation Y.
This so-called millennial cohort, the largest generation in American history, landed in the cradle during an awful recession, learned to walk during the Reagan recovery, came of age in the booming 1990s, and entered the labor market after the Sept. 11 attacks and before the Great Recession, the two tragedies of the early 21st century. They've survived an eventful few decades.
Yet nothing in those vertiginous 30 years could have prepared them for the economic sledgehammer that followed the collapse of the housing market in 2007-08. And the aftereffects, economists fear, may dog them for the rest of their working lives.
Generation Y is the most educated in American history, but its education came at a price. Average debt for graduates of public universities doubled between 1996 and 2006. Students chose to take it on because they expected to find a job that paid it off; instead, they found themselves stranded in the worst economy in 80 years. Young people who skipped college altogether have faced something worse: depressed wages in a global economy that finds it easier than ever to replace jobs with technology or to move them overseas.
Finding a good job as a young adult has always been a game of chance. But more and more, the rules have changed: Heads, you lose; tails, you're disqualified. The unemployment rate for young people scraped 18 percent in 2010, and in the past five years, real wages have fallen for millennials--and only for millennials.
It costs a lot to be a grown-up. It means more than saying "please" or holding doors for the elderly, although those are nice to do. It also means moving out of your parents' home, renting a place of your own, paying for food and clothes, buying a car, getting married, having children, buying a house--all the trappings and expenses of a middle-class life.
These life stages drive a consumer economy. "Housing IS the Business Cycle" is the memorably brief title of a 2007 study by University of California (Los Angeles) economist Edward E. Leamer showing that the housing market both presages recessions and bolsters recoveries. A generation that buys new homes is a generation that pushes the economy forward.
But millennials have responded with a collective "No, thanks." Or at least "Not yet." More than one in five Americans ages 18-34 told Pew Research Center pollsters last year that they've postponed having a baby "because of the bad economy." The same proportion said they were holding off marriage until the economy recovered. More than a third of 25- to 29-year-olds had moved back in with their parents. Millennials have been scorned as perma-children, forever postponing adulthood, or labeled with that most un-American of character flaws: helplessness.
The case for pessimism is depressingly easy to make. Even after the economy recovers, the penalty for graduating into a recession may still apply to young people's wages. When Lisa Kahn, an economist at Yale, studied how the 1981-82 recession affected the lifetime earnings of young workers who graduated during the 1980s, she found that for every percentage-point increase in total unemployment, the starting incomes of new graduates slipped by as much as 7 percent. Two decades later, because of their bad timing, these graduates had taken a $100,000 hit to their cumulative earnings.
If this pattern applies to millennials, the consequences will be grim for an economy that relies on big-ticket items such as houses and cars. Half of a typical family's spending goes to transportation and housing. But Americans ages 21-34 bought only 27 percent of the new vehicles sold in the United States in 2010, compared with 38 percent in 1985; from 2008 to '11, only half as many young Americans as a decade earlier acquired their first mortgage. Having been rejected by the economy, millennials are in turn rejecting cars and houses--the pillars of the modern consumer economy.
Life Gets Better (and Cheaper)
Still, do millennials really count as the unluckiest generation since World War II? It's true that wages haven't grown this slowly in decades, and globalization and technology have held down wages for millions of young workers to an unprecedented extent.
But in some ways, millennials are also the luckiest.
For one thing, they're living in an age of affordable abundance. Food has never been cheaper as a share of the typical American family budget. The price of apparel is also falling relative to wages. The Internet, while no substitute for gainful employment, has made many things cheaper that used to take extra income to buy--communication, notably, including private information-sharing and professional collaboration. It has made casual retail cheaper (and more convenient). It has also made mass entertainment cheaper, especially music and amateur videos. These commodities have grown cheaper, in part, by replacing and lowering the cost of human work.
That we live in a golden era of cheap essentials and entertainment might register as cold statistical comfort for the millions of unemployed millennials who watch their dreams fade with every passing year. This group can hope for another mitigating factor: time. The U.S. economy is expected to continue its recovery--unemployment falling, wages rising, debts slowly getting repaid, life going on as it did before 2008. In an economy that is now creating 200,000 private-sector jobs a month, the total debt held by young adults has shrunk to its lowest level in 15 years.
Even if millennials haven't read about these trends, they seem to feel them in their bones. The Pew study that found twentysomethings moving back home also reported that nine in 10 millennials said they already earn (or have) enough money, or expect to in the future. If optimism has any currency, the millennials may well outgrow their miserable circumstances and bequeath to their own children a more prosperous nation than their parents left for them. They're the best-educated generation in American history, moving into their prime working years while home prices remain fairly cheap. Is that so unlucky?
Still, their timing couldn't be unluckier. The past 30 years have seen enduring income stagnation capped by an economic collapse. Average household wealth nearly doubled between 1983 and 2010, the Urban Institute recently found, but younger generations shouldn't expect the same. They already lag their parents in wealth (by 7 percent) at the equivalent age, and "now, stagnant wages, diminishing job opportunities, and lost home values may be merging to paint a vastly different future for Gen X and Gen Y," Eugene Steuerle and three coauthors concluded. "Despite their relative youth, they may not be able to make up the lost ground."