This report explores the extent to which the UK’s generational living standards challenge is replicated in other high-income economies, focusing on trends in household income and experiences in the labour and housing markets.
We look at the shared backdrop to these trends across advanced economies: demography – the fiscal challenges posed by falling birth rates and rising dependency ratios – and the financial crisis – sharp falls in real GDP per capita across almost all advanced economies in the late 2000s (Section 1), before examining gains (and losses) in real household income growth between generations of adults that are still alive today i.e. generations born between 1911 and 2000 (Section 2).
We then focus on post-crisis trends in pay and employment in advanced economies as well as some of the long-run, more structural, challenges facing young people in labour markets (Section 3). We finish by examining the impact that changes in home ownership rates and housing costs have had on the prospects for young people here in the UK and in other places in which housing has been identified as a clear issue for young people (Section 4).
- Overall, the pace of generation-on-generation growth in household income has slowed across high-income countries. It is common for millennials (born 1981-2000) who’ve reached their early 30s so far to have experienced little or no income improvement on generation X (born 1966-80).
- Our findings mark the UK out in terms of the degree of reversal in young adults’ fortunes. With the partial exception of Spain, the UK is the only advanced economy in which large generation-on-generation progress on both household income and home ownership rates was a feature of the 20th century but has failed to materialize for younger generations so far in the 21st
- Between 2006 and 2014 cohort-on-cohort progress in real earnings went into reverse for all working-age cohorts in the UK and Greece, the falls in real earnings in these two countries stand out internationally. Real earnings fell twice as fast between 2006 and 2014 for the under 30s in the UK than for those in their 50s – a bigger age divide than recorded in any other country with pronounced earnings declines overall.
- Generational falls in home ownership rates for younger generations have been larger in the UK than in the US, Australia or Spain, where home ownership is also a key area of concern for young people’s living standards prospects. These falls follow on from large generation-on-generation increases in home ownership rates between the greatest generation (born 1911-1925) and the baby boomers (born 1946-1965).
- The UK’s rise and fall in homeownership rates has had a knock on effect on generational wealth progress, a major determinant of long term living standards. Exceptional progress in generation-on-generation wealth levels has ground to a halt for younger generations who are now experiencing a decline. Similar effects have been experienced by the US, but these are far more recent – starting only after the crisis – and smaller.
- Low levels of housing stock relative to population size, coupled with sluggish levels of house-building since at least the 1990s, has put pressure on house prices relative to incomes in countries experiencing significant housing woes, the UK included, and has thereby raised the barriers of entry to homeownership for younger generations.