Income inequality hitting young people the hardest
The promise of market economics is supposed to be that as an economy grows, the paychecks of wage earners grow with it. But according to a new study, this is no longer the case.
Who's hit hardest by the new unequal reality? Young people.
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During the last economic expansion, the period dating from 1993 to 2005, a full 98 percent of workers saw their wages rise in the 25 major advanced economies around the world. Granted, the rise wasn't evenly distributed, but the proverbial rising tide did lift most boats, at least slightly.
But from 2005 to 2014, the subsequent period encapsulating the Great Recession and so-called recovery, just a third of wage earners saw their incomes rise. The vast majority of earners – around 65 to 70 percent – saw their paychecks decline or stagnate. In the United States, the proportion with stagnant wages was a full 81 percent.
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The new report, entitled "Poorer Than Their Parents? Flat Or Falling Incomes In Advanced Economies," comes from the McKinsey Global Institute. As the title suggests, the study examined the prospects for over 800 million workers in the 25 wealthiest countries and found that the rising generation is at serious risk of ending up poorer than their parents.
Since World War II, each generation has had the reasonable expectation of doing better than their parents. According to the report, this is no longer a likely prospect. With the rise of automated workplaces and other labor market shifts, a full 30 to 40 percent of workers may never see their income grow again – even if the economy grows significantly.
Another report, from the Center for American Progress, shows this trend playing out in the United States. The liberal think tank found earlier this year that 30-year-olds today make less money than 30-year-olds made 10 years ago. In fact, today's 30-year-olds make about the same income as people their age did in 1984, "despite the facts that they are 50 percent more likely to have finished college and that they work in an economy that is 70 percent more productive."
In other words, their wages have flat-lined.
Meanwhile, wealth has concentrated at an unprecedented rate at the tippity-top of the economy. The combined wealth of the Forbes 400, a whopping $2.3 trillion, totals the combined wealth of more than 60 percent of the rest of the country – nearly 200 million people. Another just-released study, this one from veteran inequality economist Emanuel Saez, shows income for the top 1 percent has grown at nearly twice the rate as the bottom 99 percent since 1998.
The report from McKinsey recognizes that this trend is bad news both for the economy and for the rise of nativist politics. In their words, "those who were not advancing and not hopeful about the future were more likely than those who were advancing to support nationalist political parties."
Without significant action to reverse the growing divide, it's clear that these trends will continue to play out. That's bad news for the rising generation set to inherit the deeply unequal economic heritage of their parents.
