This Is What the Recession Did to Millennials
America’s young adults bore the brunt of the 2007-2009 economic recession. Those who entered the job market during the worst of the crisis may forever be marked by it, particularly the graduating class of 2008. Understanding the effects of the Great Recession on the millennial generation is far from complete, but some truths are evident: The recession caused many Americans born roughly between 1981 and 1996 to defer major adult milestones like purchasing a home or car purchases and delaying marriage.
But while the ramifications of postponing marriage and buying a home will eventually fade into memory, the economic crisis left more permanent scars. “The decisions millennials make now in the aftermath of the recession’s effects can reverberate for years,” noted the U.S. Department of Labor’s Bureau of Labor Statistics (BLS), summarizing the findings of a 2014 analysis conducted by the Federal Reserve Bank of Atlanta.
“Like generations before them, the demographic cohort known as the millennials … have shaped a number of social and cultural aspects, including fashion, technology, and politics,” wrote the Fed. “One area where they’re facing challenges in leaving their mark, however, is the economy.” The key question is how profoundly will the economic downturn and its related side effects hurt this generation.
The first piece of data to consider as evidence are unemployment figures. To be clear, the millennial generation, just like other demographics, is not “monolithic,” or completely uniform. That said, millennials who entered the labor market just as the economy crashed have one important trait in common: They had witnessed how the Great Recession had dramatically reshaped the landscape of employment.
Over the past year, much has been made of the labor market recovery. The U.S. economy is gaining momentum, and employers are finally hiring. But while these benefits have seeped to almost all strata of the job market, all is not well for millennials. Improvements in the headline figures obscure the fact that recession-era graduates still have to worry about the labor market, wages, debt, and inequality.
Even six years after the U.S. economy returned to growth, jobs remain difficult to find for millennials. In fact, employment is much harder to find for workers between the ages of 25 and 34 than it is for any other age bracket, and this is the new normal. Since the 2001 recession that followed the bursting of the dot-com bubble, the unemployment rate for young Americans has continued to be higher than the overall jobless rate.
Looking at workers between the ages of 25 and 34, the age bracket most inclusive of those impacted by the recession, Labor Department data show the headline unemployment rate (the percentage of unemployed workers in the total labor force, not the nation) was consistently above the overall level of joblessness since the recovery began, with the exception of this past February, an exceptionally good month for job creation.
Even more concerning is the fact that this gap is now wider than it was in 2009, suggesting the current recovery has not spread to younger workers as previous recoveries did. Census data show that only about 63% of millennials are working in 2012, compared with the 70% of the similar 18- to 31-year-old age bracket in 1990. And there is no indication this trend is waning. Furthermore, although Millennials now make up the biggest generation in the labor force according to Pew Research data, they account for just 33 percent of employed Americans because so many are unemployed. Forty-eight percent of the unemployed population are Millennials.
Economists debate what has caused employment opportunities to be depressed for younger millennials. Likely, this chronic illness of 21st century America is the result of a number of factors, not a single trend. Part of the problem is that a growing share of workers older than 55 are not retiring. The displacement of jobs by increased computerization, limited upward mobility, and a shortage of marketable skills serve as other pieces of the puzzle.
Lingering weakness in the millennial job market is not just a transient problem. The fact that millennials entered the job market at the worst time in modern history, not to mention the fact that employment opportunities continue to be below pre-recession levels, mean the financial crisis has left an indelible mark.
By and large, millennials will be unable to make up this lost ground, because early adulthood is when productivity is greatest and pay raises more significant. A depressed starting salary means a worker will likely earn much less for the rest of his or her career. Lisa Kahn, a Yale University labor economist, found that workers who graduate from college during a period of high unemployment earn significantly less than workers with better timing.
This gap lasts not for a year or two, but for decades. Her research shows that those who graduated in a bad economic year earned 14% to 23% less years later. Even now, millennials are far poorer than 20-somethings and 30-somethings in 1989.
The Federal Reserve’s 2013 Survey of Consumer Finances found that the median incomes of households headed by 18- to 33-year-olds fell 19% between 2007 and 2013, compared with the same age cohort in 2007. Across all age brackets, median incomes fell a more modest 12%. This comes despite the fact the millennial generation is the best-educated in American history.
Millennials also tend to stay with their low-paying jobs. Catherine Rampell of The Washington Post writes that “switching jobs is one of the most important ways young workers get raises and derail themselves from a low-paying career track.” But the quits rate, a figure tabulated by the Department of Labor that shows the willingness of workers to leave their jobs, still remains below pre-recession levels.
This reality suggests that when young workers enter the labor force during an economic downturn, they have unusual difficulties climbing the job ladder, and academic research has reached a similar conclusion. It has been postulated that limited upward mobility occurs because these workers are risk-averse, or their early jobs did not provide the rich skills for career advancement, or prospective employers turn down their spotty résumés of survival jobs in favor of 22-year-olds freshly graduated from college.
Plus, earnings growth for the wealthiest Americans has been outpacing the growth of lower- and middle-income Americans for 40 years, according to the Center on Budget and Policy Priorities’ analysis of data from the Congressional Budget Office. And while incomes have generally stagnated, the cost of living has increased. Although this phenomenon is by no means limited to the young, it shapes their economic world.
“The American Dream is a myth,”Joseph Stiglitz, a Nobel-prize winning economist, argued Tuesday during a New York appearance promoting his new book, The Great Divide. To Stiglitz, the American Dream is out of reach because it has become increasingly difficult for average citizens to climb the economic ladder. What is the root of this problem? Stiglitz believes increasing inequality is caused by not only market forces but policies promoted by corporate America and designed by lawmakers, especially in the years since Ronald Reagan was first elected.
As Stiglitz alluded, market forces are also playing a role. Even when times are good, the labor market has continued to grow increasingly sclerotic. The U.S. economy lost 8.7 million jobs during the recession, and while an equal number of jobs have been created since the recovery began, a great majority of those new jobs are not of the same quality as the ones lost.
Growth in middle-class jobs is absent, partly because of “the increased use of the Internet and company intranets,” Martin Kohli, chief regional economist at the BLS, said, and partly because the long-lasting uncertainty of the economic recovery favored part-time and low-paying jobs.
Massive student loan debt complicates the picture further. “Having kept a close eye on labor markets over the last few years, I was not so surprised to learn details about what the labor market looks like for millennials, but I was surprised to see that more of them are financing their education using credit, with each student assuming, on average, more debt than those in the past,” wrote Atlanta Fed economic analyst Mark Carter, a millennial. “Despite the millennial generation’s being the best-educated generation in U.S. history, data show that those holding more student loan debt are less likely to hold mortgage and auto loans.”
The percentage of millennials with student loan debt is 42%, significantly higher than the 17% of the 20-somethings and 30-somethings in 1989 who had debt. It is also higher than the 35% who had debt in 2007 and the 40% who had debt in 2010. The average student loan debt for Americans 18 to 33 years old was $17,000 in 2013, the most ever. This happened because students are paying more for education than ever before.
As a result of massive student loan debt, limited employment opportunities, and stagnant wages, millennials are “straying from historic patterns,” and that change is “having a negative impact on the wider economy,” according to the BLS. The Atlantic has described millennials as the cheapest generation because a large share has forgone buying houses and cars.
Younger millennials, those who began their job hunts as the economy was recovering, are moving out; Census data show that the share of 18- to 24-year-olds living with their parents dropped in 2014 for the second consecutive year. But by comparison, the share of 25- to 34-year-olds living at home rose.
In 2014, 14.7% of older millennials lived with their parents, the highest share since the government began tracking that figure in 1960. This translates to problems for the U.S. economy, because this key demographic is spending less on big-ticket items. Since World War II, new cars and suburban homes powered the economy.
That millennials appear to have lost interest in purchasing cars and homes is the byproduct of the recession. But here, too, the recession left more than a temporary scar. It seems to have fueled a permanent generational shift in spending habits and tastes, as the Atlantic proposed.