“There is a growing divide between a more prosperous older generation and a struggling younger generation.” This is British prime minister Theresa May’s assessment of the country she now leads. Narrowing the generational gap in incomes is one of the many challenges she now faces.
New research out recently reinforces that message. A report (pdf) by the Institute for Fiscal Studies shows that, although median household income in the UK as a whole has finally risen above pre-recession levels, this masks big differences between the generations: Median income for those aged 22 to 30 is still 7% lower than it was in 2008.
Another recent report (pdf) by Resolution Foundation, a London-based think tank, dug into the details of intergenerational inequality. Researchers analyzed earnings, employment rates, home ownership, and welfare payments over time and across generations. They estimate that a typical millennial in the UK today will have earned £8,000 ($10,500) less in their 20s than a Generation X-er did, even after adjusting for inflation.
Millennials are set to “record much lower generational pay progress” than their predecessors, the Resolution Foundation says. In a relatively optimistic scenario, millennials’ inflation-adjusted median lifetime earnings works out to just 7% more than Generation X, which will enjoy a 21% boost in lifetime earnings over the generation that came before it, the Baby Boomers.
One of the main factors contributing to millennials’ slow-growing incomes is housing costs. Thanks to eye-watering property prices, the report estimates that, in real terms, millennials will spend an average of £44,000 more on rent in their 20s than Baby Boomers did. What’s more, a Baby Boomer at age 30 was 50% more likely to own their own home than a millennial of the same age.
The average UK property is now worth around five times the average person’s earnings, nearly double the ratio 20 years ago. In London, it’s a whopping 10 times earnings today, more than triple what it was in the mid-1990s:
And then there’s Brexit. What the vote to leave the EU will mean for investment, trade, and productivity—and by extension, workers’ incomes—is not yet clear. But as with the global financial crisis in 2008, any downturn is likely to hit the young hard, and put at risk even the modest gains in income they are expecting compared with the previous generation.
There is a “pessimistic but plausible” scenario, the Resolution Foundation says, in which Brexit and subdued productivity growth weigh down the incomes of young people for a much longer time. In this case, the think tank notes, millennials “face becoming the first generation on record to achieve lower lifetime earnings than their predecessors.”