Why are baby boomers bad
How bad it really is for millennials
Has the financial crisis made the millennials the lost generation? Lower real wages permit this premature conclusion. However, a closer look at the incomes of individual cohorts puts the pessimism into perspective.
Every generation has one thing in common: our children should be better off than us. What was considered fulfilled for the war generation, their numerous children - the baby boomers - and their descendants, Generation X, is no longer a matter of course for the generation of "Millennials" - Generation Y. The cohorts between 1981 and 2000 were hit by the financial crisis in the early stages of their careers. The generation internship living in the Hotel Mama is a much-tried cliché.
The youth are not bursting with purchasing power
The question of whether young people manage to replicate their parents' prosperity today is crucial for the sustainability of the Austrian welfare state. Because the bulk of the employees, the baby boomers (1945–65), are now gradually reaching the actual retirement age. Generation X (1966–1980) also has a comparatively high birth rate.
The government presented the 2016 Social Report this week. In a subordinate clause on page 259 of almost 400 there is a finding that deserves significantly more attention:
„If you take the turn of the millennium as a starting point, then you had to the incomes [of young people between 20 and 29] at the median and also below, in some cases, suffer substantial losses in purchasing power, while real wages stagnated at the 75th percentile.“
This means that the highest-earning neighborhood among the boys was just barely able to maintain its income level; all of them have lost since the turn of the millennium.
Is it really that bad for Generation Y?
In a special evaluation for NZZ.at, Statistics Austria compared the median incomes from 2000 with 2015 for each age group between 18 and 60 years. The surveyed median annual income (half of the employees earn more, the others less) were adjusted for inflation so that the differences in purchasing power can be seen. Because in these 15 years prices have risen by a third. This makes it possible to understand whether an average 30-year-old (born 1970 - Generation X) earned more at the turn of the millennium than a 30-year-old (born 1985 - Generation Y) in 2015.
The result: the median wages for all age groups from 18 to 60 were higher in 2000 than in 2015.
At first glance, this seems worrying, as it not only confirms the loss of income for young people identified in the social report, but also for all age cohorts.
However, the economists Hanno Lorenz and Michael Christl from Agenda Austria relativize the glaring impression of the loss of income: The comparison of annual income disguises how many hours a week were worked for the wages earned. After all, not only is the total number of employees increasing, but part-time jobs in particular are increasing. In 2000 around 15 percent of employees worked part-time, in 2015 it was almost 30 percent.
Since almost every part-time job, calculated over a year, brings in less than the median earnings, the mean income is pulled down by the lower number of hours worked. For a 30-year-old with a 20-hour job to have a positive influence on the average annual income, he would have to earn over 1,400 euros net per month. So if someone in a household voluntarily spends more time with his family than in the office because his partner may have recently also started a part-time job, the median income falls, even if the family can afford more with the double salary.
In order to estimate the extent of this part-time effect, one would therefore only have to compare the incomes of full-time employees. However, these data are not available for the year 2000. The most distant figures are available from 2004 onwards. Thus, although no 15-year-old generation can be represented, the development over more than a decade can still be shown.
No losses in full-time wages
If one compares only the year-round full-time employees of the same age groups, the tide turns - albeit only slightly: With the exception of the 60-year-olds, all age groups in full-time employment earned more in real terms in 2015 than in 2004. The increases range from one to eleven percent wage growth above inflation. During this period prices had risen by a quarter.
Let's stick with the full-time employees: all generations have improved their annual incomes in the eleven years since 2004, but not all of them to the same extent. The trend from the baby boomers is clearly downhill.
In 2015, the age groups from 1965 and older were included in the evaluated groups. These 50 to 59 year olds had an average income increase of eight percent compared to their predecessors, who were now a decade older. Caution: This is not about the income growth of individuals, but the generation comparison. For example, an employee in 2015 at the age of 56, i.e. (born in 1959 - baby boomers) earned 8 percent more than a 56-year-old (born in 1945 - war generation) in 2004.
Generation X members (born 1965–80) earned an average of 5 percent more. The 44-year-olds (born in 1971) had a median income of 43,400 euros - 5 percent more than the 41,247 euros of the 44-year-old baby boomers (born in 1960).
Generation Y only improved their incomes by an average of 3 percent. A 27-year-old (born in 1988) had the lowest relative increase in 2015. Over the entire year, he earned around 450 euros more than the 27-year-old (born 1977) in 2004.
The good news is that a full-time job generated more income for each generation than its predecessor. In addition, the dynamism within Generation Y has also improved. The younger cohorts (1995 and 1996) recorded relative income increases of 7 and 5 percent respectively - as much as some baby boomers. That is cautiously optimistic.
The age comparison also clearly shows that the median income increases sharply at the beginning and at the end of the career. A comparison between the years 2000 and 2015 in particular shows how the incomes of 18 to 24-year-olds diverged, while the gap to the common early retirement ages remained fairly constant.
One of the reasons for this is that young people were in training for a longer period in 2015 and only entered the labor market later - or before that they had poor earnings from internships or student jobs, explains economist Hanno Lorenz. The proportion of 15 to 19 year olds in the labor market has therefore also fallen over the entire comparison period - apprentices are not even included in the data.
At the other end of the age group, mean salaries have skyrocketed. That is not surprising either. The Austrian tradition of early retirement plays a role here, as the economist Michael Christl explains. With various reforms to restrict early retirement, the younger cohorts no longer leave the labor market so much earlier, the median wages are falling. Because, on average, it is more the low-wage earners who take early retirement - for example via the chopper regulation. They increasingly remain in the income statistics of the elders.
Since 2000, the actual retirement age has increased from 59 to 60 for women and from 60 to 62 for men, according to the OECD. The legal starting age of 65 for men and civil servants is still a long way off.
Does the intergenerational contract hold?
Which view is now the more legitimate? The finding that the income for full-time work developed positively, or the pessimistic assessment, which considers all employees together, have lower median incomes than they did a decade ago?
Especially since both the total number of employees and the wage bill have increased since 2000, it can at least be ruled out that the increase in part-time work has come at the expense of former full-time positions.
However, the data show a negative trend in a generational comparison. The middle cohorts of Generation Y in particular are likely to feel the consequences of the financial crisis for their entire lives. At the same time, since the turn of the millennium, wage tax receipts have risen faster than the sum of salaries every year - the only exceptions were the years with tax reforms. So the tax authorities are getting an ever larger part of the overall rise in wages.
With the upcoming wave of baby boomers retiring, the burden of the so-called intergenerational contract is likely to increase significantly. How long millennials will have to work and what pension entitlements will remain for them is in the stars. Even if, in view of the development of incomes, one can be satisfied with the fact that Generation Y still earns a little better than their parents, there may be restrictions in the future: before taxes are deducted.
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