Study, Work, Progress, Repeat? How and why pay and progression outcomes have differed across cohorts

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This paper is the fifth report for the Intergenerational Commission, which was launched in the summer of 2016 to explore questions of intergenerational fairness that are currently rising up the agenda and make recommendations for repairing the intergenerational social contract. It attempts to understand the concerning finding that millennials who have entered work so far have made no earnings progress on generation X before them. It does this by exploring the population and jobs market changes that underpin these faltering cohort-on-cohort earnings improvements, and the mechanisms via which year-on-year increases in cohorts’ pay have slowed down.

  • In examining the fact that there has been little or no pay growth (and even some pay falls) between cohorts and those at the same age 10 years before, we find that compositional effects have played an important role. Higher qualification levels and a shift towards higher-paying occupations have provided a compositional boost to pay for older cohorts in the recent period compared to those who came previously, but for cohorts born in the 1980s the compositional effect is zero or even negative. This is driven by much smaller boosts from rising educational attainment than older cohorts have experienced, combined with shifts towards part-time working and lower-paying occupations.
  • In examining the slowdown in year-on-year earnings progression within cohorts at a given age, we find that lower pay rises when people remain with firms, particularly for longer tenures, have played a dominant role across the age range. A decline in both the rate of job moves and the pay increases they bring has accentuated the slowdown for cohorts born in the 1980s. For cohorts born in the 1990s, the main effect so far has been a collapse in starting pay rates.
  • Many of the changes we describe will be connected to the financial crisis and the pay squeeze that followed it. But as our analysis sets out, a broad range of factors – including growth rates in educational attainment, the impact of changing occupational structures, the rise of atypical working, a structural decline in job mobility, and the enduring impact of lower pay rises when employees stay with firms for long periods – have contributed to stagnating pay growth between cohorts and slower progression rates within them. Some of these factors are of course linked to the crisis, but they clearly have broader and more structural elements too.