Young adults and the recession
Jonathan Cribb, IFS
15th July 2014
© Institute for Fiscal Studies
Introduction
• Household incomes have fallen sharply since 2009–10
• Last year’s report showed that changes to the income distribution
varied by age
– contrasting fortunes of pensioners and young adults since the
recession
• We investigate the reasons behind the falls in living standards of
young adults
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Inequality between different age groups
Percentage of overall median income
(measured AHC)
Median income by age compared to overall median income (measured AHC)
1978–80
2007–08
2012–13
140%
120%
100%
80%
60%
Age
Source: Figure 3.7b of Living Standards, Poverty and Inequality: 2014
Notes: Household income is equivalised and measured after housing costs are deducted
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Real median household income, (2007-08 =100)
22-30 year olds have seen large falls in income
Age 22–30 (BHC)
Age 31–59 (BHC)
Age 22–30 (AHC)
Age 31–59 (AHC)
105
100
95
90
85
80
75
70
2002
2003
2004
2005
2006
2007
2008
Source: Figure 5.2 of Living Standards, Poverty and Inequality: 2014
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2009
2010
2011
2012
Incomes rising less fast as young people age
Born 1973–77
Born 1978–82
Born 1983–87
Real equivalised weekly household income
£600
£550
£500
£450
£400
£350
20
21
22
23
24
25
Age
Source: Figure 5.1 of Living Standards, Poverty and Inequality: 2014
© Institute for Fiscal Studies
26
27
28
29
30
What has driven the income falls for young adults?
Contribution to household income growth for adults aged 22-30 , 2007–08 to 2012–13
Total household income
-12.0
Income from adult (and partner)
Net earnings
-13.5
Net self-employment income
-0.5
Benefits and tax credits
Other
1.5
-0.8
Deductions (e.g. council tax)
0.5
Income of other household members
Parent(s)
Others
2.0
-1.2
-20
-10
0
10
Contribution to household income growth (ppt)
Source: Table 5.1 of Living Standards, Poverty and Inequality: 2014
© Institute for Fiscal Studies
Employment rates have fallen for young adults...
22–24
25–30
Employment rate (%)
80%
70%
60%
50%
40%
2002
2003
2004
2005
2006
2007
2008
Financial Year
Source: Figure 5.7 of Living Standards, Poverty and Inequality: 2014
© Institute for Fiscal Studies
2009
2010
2011
2012
...but have barely changed for 31-59 year olds
22–24
25–30
31–59
Employment rate (%)
80%
70%
60%
50%
40%
2002
2003
2004
2005
2006
2007
2008
Financial Year
Source: Figure 5.7 of Living Standards, Poverty and Inequality: 2014
© Institute for Fiscal Studies
2009
2010
2011
2012
Earnings have fallen more for young adults
Change in real median earnings from 2007 –08 to 2012 –13
Weekly earnings
Hourly wage
Change in real median earnings (%)
5%
0%
-5%
-10%
-15%
-20%
-25%
Age
Source: Figure 5.9 of Living Standards, Poverty and Inequality: 2014
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Recent cohorts have lower earnings than older ones..
Born 1968–72
Born 1973–77
Born 1978–82
Born 1983–87
Gross weekly earnings
(£ per week, 2012-13 prices)
550
500
450
400
350
300
250
200
22
23
24
25
Age
26
Source: Figure 5.10 of Living Standards, Poverty and Inequality: 2014
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27
28
29
30
Lower earnings for young adults
• Individuals born in the mid 1980s have earnings that at age 25 are
– 10% lower than those born 5 years earlier
– 6% lower than those born 10 years earlier
– 2% higher than those born 15 years earlier
• This is despite a large increase in education for later cohorts
– 31% of mid 1980s cohort have a degree at age 25
– compared to 25% of those born in mid 1970s at age 25
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Income falls cushioned by parents’ incomes
Percentage of 22-30 year olds living on own and with parents, and their incomes
Living on own
or with partner
only
Living with
parents
Percentage of group in 2005–06 to 2007–08
Percentage of group in 2010–11 to 2012–13
60%
59%
26%
28%
Income levels, 2010–11 to 2012–13
Median household BHC income (per week)
Median benefit unit BHC income (per week)
£459
£459
£510
£281
–11.7%
–11.7%
–7.8%
–17.3%
Income changes between 2005–06 to 2007–08 and
2010–11 to 2012–13
Median household BHC income
Median benefit unit BHC income
Source: Table 5.2 of Living Standards, Poverty and Inequality: 2014
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Does this matter for living standards?
• Young adults who live with low-income parents are more likely to
say that they cannot afford:
– a holiday, to save £10 per month, to keep up with regular payments
– even when comparing young adults with similar personal incomes
• Parents’ incomes may have provided insurance to young adults
• Living with parents not a long term solution to help support young
adults’ living standards
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Looking to the future
• A crucial question is whether the recession has done lasting
damage to the earnings and incomes prospects of young adults
• There has been a decrease in the proportion of young adults who
are not economically active or in full-time education
– some may have worried about large numbers of young adults
becoming discouraged or detached from the labour market
• We do know that home ownership rates of this younger
generation are likely to remain lower than for earlier cohorts
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Recent cohorts are also less likely to own a home
Born 1963–67
Born 1973–77
Born 1983–87
Homeownership rate (%)
80%
70%
60%
50%
40%
30%
20%
10%
0%
20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
Age
Source: Figure 3.13 of Living Standards, Poverty and Inequality: 2014
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Conclusion
• Young adults have seen particularly large falls in income since the
recession
• This is entirely explained by falls in employment income:
– lower employment, lower hours worked, lower hourly wages
• Parents’ incomes have cushioned the fall in incomes for young
adults
– important now; potentially less important as they age
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