October 26, 2012 8:02 pm

Jinxed generation’s plight worsening

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A pedestrian passes a job centre in London, U.K©Bloomberg

For the first time, a grandmother in her 80s can expect to enjoy higher living standards than someone in their 20s who is working, as the downturn hits young people’s incomes much harder than the old.

The fear is that this worse start will prove long-lasting and harm lifetime incomes – just as high youth unemployment had persistent effects on a generation in the 1980s.

Jinxed generation charts

Jinxed generation charts

Financial Times research into generational living standards shows the plight of the current “jinxed generation” is intensifying. Incomes after tax of those born between 1985 and 1995, who are now entering the labour market, are falling faster than any other age group.

Using data from more than 750,000 households from the government’s income surveys over the past 50 years, FT analysis shows that the median household take-home pay for those in their 20s fell 6.3 per cent between 2008-09 and 2010-11. That figure takes account of inflation.

If housing costs are included, the fall was even larger, at 9 per cent.

In contrast, households with people in their 60s, 70s and 80s saw average incomes rise by about 1 per cent over the same two-year period. That finding supports a study this week by the Office for National Statistics showing that pensioners saw the fastest growth of living standards for any group in Britain during the past 35 years.

After taking into account housing costs – which can be close to zero for pensioners who own their properties outright – disposable incomes are now higher for people in their 80s than those in their 20s.

The gains for the elderly and big reductions in living standards for the young apply to both the rich and the poor, suggesting that the trends are not driven solely by unemployment or social security cuts for the young.

Professor John Hills, of the London School of Economics, said: “What is striking in current policy is that we appear to be making progress on overdue pension and care reforms that benefit older cohorts . . . but the brunt of the cuts is being borne by those of working age – and especially by young adults.”

Understanding why Britain has a jinxed generation, and whether it will disappear once the economy returns to a more normal growth rate, is beginning to occupy economists and social policy experts across Britain.

A concerned Sir Mervyn King, governor of the Bank of England, pointed out this week: “Such is the scale of the global adjustment required that the generation we hope to inspire may live under its shadow for a long time to come.”

Prof Paul Gregg, director of the Centre for Analysis and Social Policy at the University of Bath, says the evidence is so far tentative but he points to young people missing out on promotions and the ability to move jobs as easily in the long downturn Britain has endured.

“Your 20s is a crucial period when you rapidly gain experience, job tenure, responsibility and matching [your skills to employers’ needs],” he said. Those forces have been weakened over the past five years. “The recession is whipping away the ladder of opportunity.”

The FT data show a pattern of problems for young adults – from graduates with the best jobs to those struggling to find employment. Today’s well-off 25-year-olds are significantly poorer than their equivalents who were born 10 years earlier, and no better off than those born between 1965 and 1975, who are now mid-career.

For those born in the 1990s, incomes after tax (in 2010-11 prices) for the 10 per cent of richest households are the same as those born around 1970, and worse than for those born around 1980.

With older workers more insulated from the recession, average real incomes for those in their 20s have now fallen to levels last seen in 1999. The drop for others (apart from pensioners) has taken their incomes back to the mid-“noughties”. Pensioners’ incomes have dropped only to 2008 levels.

Meanwhile, as government policy protects social security benefits for the elderly while cutting payments for the young, there seems no early end in sight to their squeezed living standards.

“On average, pensioner households are losing less from tax and benefit reforms planned to come in over the rest of the parliament,” said Robert Joyce, of the Institute for Fiscal Studies.

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