Young people in the UK are better qualified than ever before but have nonetheless suffered a disproportionately large fall in earnings, and now seem highly unlikely to reach the levels of wealth enjoyed by their parents’ generation, according to a major study.
Such is the scale of this divide that the median household wealth (income plus assets) of those aged 25-34 is £365,000 less that of those 30 years older – a gap that for many seems unlikely to be bridged, the London School of Economics-led report found.
Today’s average 30-year-old would have to save £33 a day for three decades to achieve the average wealth of today’s 60-year-olds.
Such disparities and the growing importance of wealth over income means inherited money is likely to be ever more crucial in determining the financial destinies of those born from the 1980s onwards, warned the lead author of the paper, Professor John Hills.
Meanwhile, falling wages make it possible that many graduates, of whom there are more than ever, might never repay student debts.
According to Hills, who heads the LSE’s Centre for Analysis of Social Exclusion, policymakers need to understand that “the costs of the crisis have not been evenly borne and, disproportionately, young people have paid the price.”
The report uses official statistics to examine how inequality changed from 2007-2013, focusing on how economic austerity and a tentative economic recovery affected people, depending on a range of factors, including age, gender, ethnic background and the type of home they live in.
The most striking effect was found among young people, who have suffered significantly in terms of both employment prospects and pay.
Between 2006 and 2013, the researchers found, full-time employment among people aged 20-24 fell by more than 10 percentage points for men and nearly eight points for women. In contrast, those above 30 saw far smaller falls and, for some groups over 55, there was a rise in overall employment.
The picture is similar for earnings, with hourly pay for men and women in their late 20s dropping by 14% and 16% respectively from 2007-13. The effect can be seen across income levels: even men in their late 20s in the top 10% of earners have seen a 13% drop over the seven years.
When rising housing costs are factored in, those in their 20s were 18% worse off than their counterparts five years before. Hills said: “That gives you an idea of the speed with which their situation has deteriorated.”
“It’s not that there haven’t always been differences between generations – older people have had time to save, to buy a house and pay off the mortgage and build up pension rights – but the differences are now very big indeed.
“That’s partly because the previous generation was lucky, as house prices doubled on their watch, and some of them had more valuable pension schemes than are available to younger people today. But what’s now striking is how big that age wealth gap is in relation to people’s incomes. To close the gap you’ve got to save £12,000 a year, and that’s pretty difficult when you’re talking about households with incomes of £24,000 for all their expenses.”
“Clearly that is not happening at the moment and almost certainly cannot happen, which then makes it far more important for this generation who they are related to.”
All this is happening to a generation who are increasingly likely to have degrees, as well as the significant debts that come with these. Between 2006 and 2013 the proportion of working age men with a degree or higher degree rose by more than five percentage points, while for women the increase was eight percentage points.
The report notes: “If real wages for people in their 20s and early 30s are so much lower than they were in the late 2000s, what does that mean for the assumptions that were made when designing the current student loan system?”
The study found a more complex situation among gender disparities, with a slightly widening gap between men’s and women’s median pay contrasting with a smaller fall in overall female incomes, in part because more women receive pensions and other benefits, which were more protected during the period covered by the study.
When people were examined according to housing situation, those in social housing were found to have experienced far greater falls in employment than home owners or those with private tenancies. By 2013, fewer than half the working-age adults in social housing were in any kind of work, against 84% of people with a mortgage.
However, when housing cost are taken into account, household incomes from 2007-13 fell by about 5% for social tenants but by 13% for those renting privately, a factor of fast-increasing non-social lets.
In their conclusion to the report Hills and his co-authors say the various factors, notably the disproportionate impact on the young, leave politicians facing a big challenge: “The economic crisis and its aftermath have not affected everyone equally. These differences in economic fortune and misfortune over the last seven years will form a key part of the social inheritance of whatever government is elected, or re-elected, in the coming general election. That in turn will affect the way society and public policies evolve over years and decades to come.”
