More young people are sticking with their employer – and missing out on big pay rises as a result

Published on Jobs, Skills and Pay

 

A slowdown in job moving, employers no longer rewarding staff for long service, and a shift towards work in low-paying sectors have meant that millennials have had a slower and lower-paid start to their careers than the generation before them, according to the new research published today (Thursday) by the Resolution Foundation.

Study, work, progress, repeat? – the fifth report to the RF-hosted Intergenerational Commission – explores why Britain’s longstanding generational progress on pay – in which successive generations earn considerably more than the generation before them – has come to a halt.

It shows that each successive five-year cohort of workers – from those born in the early 1950s all the way through to those born in the late 1970s – earned more than the cohort before them during their 20s.

However, this progress has ended for those born from the 1980s onwards. People born during the early 1980s have earned around £40 a week less than those born 10 years earlier around the age of 30. Those born in the late 1980s are currently earning no more than those born 15 years earlier were earning at the same age.

The report highlights a number of factors behind this stalled pay progress for millennials in their 20s and early 30s, with the financial crisis having a key role but also obscuring wider trends.

A key change, and one that began before the crisis, has been the falling proportion of young people moving jobs in recent years. Just 1-in-25 people born in the mid-1980s moved jobs from year-to-year when they were in their mid-20s – half the rate for those who were born a decade before them.

This decline in job mobility is particularly damaging for young people as the typical pay rise for someone moving jobs at that age is around 15 per cent. The Foundation notes that job mobility actually fell for all workers in the wake of the financial crisis. However, because the job move premium declines with age it was less of a problem for older workers, who tend to move jobs less frequently anyway.

Another consequence of falling job mobility has been the increasing proportion of young people who have stayed with their employer for longer periods, particularly five years and beyond. Around the age of 30 this has increased from 43 per cent for those born in the early 1970s to 47 per cent for those born in the early 1980s.

Crucially, at the same time the annual real pay increases that employers offer to their long-serving staff at this age has fallen from a healthy level of around 4 per cent to close to zero today. A decade on from the collapse of Northern Rock, this is a profound shift in our labour market that appears to be enduring well beyond the financial crisis.

The Foundation says that the rising share of young people sticking with their employer runs counter to the widespread perception that millennials are always on the move. It adds that this loyalty – which may stem for a lack of confidence in looking for work – may actually be stunting their pay and career progress.

Understanding – and ultimately tackling – this intertia will hold the key to getting their stalled careers back on track, and their earnings back above those born in the years and decades before them.

Looking at the other factors affecting the pay of different cohorts of workers, the report notes that stalled progress on pay is not just about a generalised slowdown in the financial crisis affecting all age groups. It finds that:

  • The growing share of workers with degrees has boosted pay for each successive cohort of workers over the last 60 years. However, this ‘graduate boost’ has fallen recently as the growth in the university population has slowed.
  • The growing share of workers in higher paying sectors has boosted pay across all age groups apart from those in their 20s, where the rising share of workers aged 26-30 in low-paying caring, cleaning and leisure activities jobs has reduced typical pay.
  • The relative growth of full-time work has boosted typical pay for those aged 50 and over, while the growth of part-time work for workers in their 20s has lowered pay.

The Foundation says that turbo-charging the careers of young people – the most highly educated generation ever – should be a priority for employers and policy makers at all levels of government.

It adds that the introduction of the Apprenticeship Levy, the government’s full employment drive and ambitious industrial strategy all offer opportunities to prioritise support for young people in the jobs market.

Laura Gardiner, Senior Policy Analyst at the Resolution Foundation, said:

“Everyone’s pay packets took a major hit in the wake of the financial crisis but young people were particularly hard hit as it came at a time when their careers were barely off the ground.

“But the stalled progress on pay for young people today is unprecedented and its causes run far deeper than the recession. The pay of older millennials in their early 30s actually started to slow before the crisis hit.

“One of the most striking shifts in the labour market has been young people prioritising job security and opting to stick with their employer rather than move jobs. This may be understandable in a jobs market characterised by rising temporary work and zero-hours contracts. But with the typical pay rise for a job mover in their mid-20s at around 15 per cent, and evidence that employers have essentially stopped rewarding their long-serving staff with real annual pay increases, such job loyalty can be very costly.

“Millennials may have fallen behind the generation before them in terms of their pay so far but they are still the most highly qualified generation Britain has ever seen. Making the most of these skills will hold the key to getting Britain’s longstanding social contract that each generation outperforms the last back on track.”