Readers Questions: is this the worse time to be a young adult in the UK?
I will answer this question primarily from the economic point of view.
The first thought that springs to mind is that if you look at the long history of the UK, this is probably a good time to be young in the UK.
Median incomes are close to an all time high (even despite the fall since since the 2008 crisis), educational opportunities are arguably better than before (even if more expensive), unemployment is relatively low and likely to fall (even if there is greater insecurity in the new job market).
It is always tempting to think that every thing was rosy in the past. But, living standards have consistently risen in the past few decades. It is true, that for the past five years, real incomes have stagnated even fallen, throwing into greater contrast rising living costs, especially housing. However, were the previous generation really better off?
Economic problems facing young people
There are several reasons to be concerned about prospects for young people.
Firstly, housing is a real problem. There is a serious shortage of affordable housing – especially in London and the south. This means that many young people simply can’t afford to buy a house like their parents generation could. Home ownership rates are falling – especially amongst people under 30.
House prices are rising faster than incomes. See more at UK housing market stats – including house price to income ratios. For many young people, buying a house is just an impossibility.
The average income of mortgage borrowers in the UK has increased to nearly £45,000.
Rising incomes are of limited benefit when house prices rise at a much faster rate. The problem is that if people can’t afford to buy, they have to rent – and here rents have increased at a faster rate than inflation, meaning young people can end up paying a high percentage of discretionary income on housing costs.
Disposable income / discretionary income
Rising real wages only tells part of the story. The key thing is how much spending power you have – after taxes, transport costs, loan repayments and housing costs. The focus on headline wage rates and real GDP can give a misleading impression to the actual economic spending power of young people.
A pensioner who has paid off his mortgage, may appear to have a low income, but with no housing costs, benefits in kind like subsidised bus travel – he may substantially better off than a young professional who is paying back a student loan and high rent.
It would be interesting to find statistics on discretionary income levels – income after housing, student loan repayment, transport and taxes. This may indicate that young people have seen fall in their spending power in past couple of decades. This data is not so easy to find.
By historical standards, unemployment is low, at least for this stage in the economic cycle. Unemployment and youth unemployment are certainly lower than in the 1980s. On the other hand, many new jobs created are low paid, part-time or temporary contracts. Zero hour contract jobs give poor job security. It is the trade off of flexible labour markets – lower unemployment rate, less job security and less job rights. On the other hand, the flexible labour market may appeal to young people who can work from home or become self-employed.
Another feature the present generation have to face is the substantially higher cost of university education. A report by the IFS suggest the average student will leave with £44,015 (Independent link)
Young people who graduate can be left with substantial debt that they will need to pay back during their early working career. This compares unfavourable with the 1970s and 1980s, where students were generously supported by the government.
However, it is worth bearing in mind, the reason university has become more expensive is that the percentage of school leavers going to university has increased dramatically (see: young people going to university). Yes, young people didn’t leave university with student loans in the 1970s – but only a small percentage ever had the opportunity to go to university in the 1960s (less than 10% pre 1960s, now government target is 50%).
The other thing to bear in mind with student loans, is that only a low percentage of them ever get paid back in full. The IFS report suggests only 73% will be able to pay their student loans back in full. it It means that the cost of university education will be higher than the government anticipated. It means that many young people don’t actually pay the loans they take on. But, it appears that the presence of student loans could act as a deterrent to taking a better paid job.
One thing that people may state is that the young generation is saddled with record national debt. This isn’t true. The 1950s saw much higher national debt and debt interest payments were a greater percentage of GDP.
You win some you lose some
The UK in 2014 has a greater degree of inter-generational inequality. The housing market is a key factor in shifting wealth from the young generation to the older generation. The economic growth of the past few decades has benefited the home owning generation more than the young generation. This is unlikely to change, pensioners are a very important political block. Whenever governments promise to build more houses, the home-owning generation pull out all the political stops with a classic – not in my back yard – campaign. Housing targets have consistently failed for the past 20 years, I can’t see that changing.
On the other hand, there are some benefits that the young generation experience, the older generation don’t. There are more equal opportunities, discrimination prevented by law is less prevalent than preceding generations. The more flexible labour markets are a mixed blessing, there is a certainly a greater choice of career for the high skilled.
One could argue that the ‘older generation’ benefited from the consumption of petrol, gas and fossil fuels without facing any of the real costs of global warming and other environmental problems which we are seeing now and in the future. Rather than face the externalities of economic growth, the older generation have gained the benefits of high consumption, but will not face the costs. The young generation have no alternative but to face the environmental consequences of decisions made by previous generations.
Would I have preferred to be born 20 years earlier? Probably not. I think opportunities are greater now that 20 years ago. However, the benefits of economic growth are becoming increasingly unequal, with a gap between older and younger generations. This is a real concern.
- Monty Python – Four Yorkshireman sketch – ‘When I was a lad…, we used to dream of living in a hole in the ground’