Another week, another set of reports looking at the impacts of the “Great Recession” has found that young people were the age group which suffered the most from its impacts. Over recent months we have already had reports from the LSE and the Institute for Fiscal Studies which reached the same conclusion; now new research by the Resolution Foundation and another study by the LSE serve to ram the point home even further.
Young people in need of a pay rise
The key finding from the research carried out by the Resolution Foundation was that pensioner households enjoyed an increase in their average incomes of nearly 10% in real terms between 2007 and 2014, whereas the real incomes of working-age households fell by 4%.
Strikingly, although record numbers of people are now in work, young people are not benefiting from higher wages: looking at wages alone, workers aged 22–29 have endured a 12.5% fall during the Coalition’s time in office.
The Resolution Foundation argue that the worsening inequalities in incomes between the different age groups have been driven by two factors: first, the fact that record numbers of older people are remaining in work for longer, because of the abolition of default retirement ages and increases in the state pension age, and second, because the Coalition has deliberately protected retired households from the impacts of its welfare reforms.
In particular, the value of the state pension has increased because of the Coalition’s “triple lock” policy, under which it rises each year by whichever is highest out of wages, general inflation or 2.5%, while working-age benefits – especially Child Benefit – have been made subject to a higher degree of means-testing and cutbacks. The Conservative Prime Minister, David Cameron, has already announced that his party will retain their support for universal pensioner benefits if they are re-elected at the general election in May.
The overall conclusion from the Resolution Foundation’s research is that young people have fared especially poorly during and after the recent recession, even compared to other economic downturns. As their director, Gavin Kelly, put it bluntly to the Guardian: “Recessions are always bad for younger people; this one has been disastrous.”
Rising wealth inequality
As if these findings weren’t bleak enough, the picture facing young people in the aftermath of the recession looks even worse if you take wealth into account as well as earnings, according to recent work by Professor John Hills and his team at the LSE’s Centre for the Analysis of Social Exclusion (CASE).
Their latest report – which looks at how the recession has affected incomes and wealth for all kinds of different groups within society, including by age, gender, and ethnicity and so on – found that “of all the breakdowns we examine in this report, the differences between age groups are the clearest and the most consistent.”
Looking at gaps in wealth, they conclude that the growing difference between today’s people who are in their 50s and 60s and those who are in their 20s and 30s are larger than should be accounted for simply by lifecycle factors (because you would obviously expect older households to enjoy higher wealth than younger ones simply because they’ve had longer to accumulate it). The intergenerational wealth gap which they identified is extremely stark, and appears to be growing larger:
“Changes in wealth were also sharply tilted against younger households, rising for age groups aged over 55, but falling for younger ones. By 2010–12 median non-pension wealth for those aged 55–64 had grown to £233,000, but it had fallen to £43,000 for those aged 25–34. Including pension rights the figures were £425,000 and £60,000 respectively – a £365,000 gap between generations 30 years apart.” (p.44)
Of course, the two trends which these reports from the Resolution Foundation and the LSE identify are closely related: if today’s young people are earning less, then it becomes harder for them to build up wealth by saving, whether that is in the form of pensions or housing assets. Without urgent action, the result of these trends will be a Britain which is increasingly polarised by inequalities of income and wealth both between different generations and – because it will make those who are fortunate enough to inherit money from their parents feel even luckier – eventually within them.