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Millennial insecurity is reshaping the UK economy

Millennials

Millennial insecurity is reshaping the UK economy

Fears about low wages, home ownership and costly degrees are paralysing young people

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This week has brought a barrage of bad news for millennials in the UK. Their home ownership rates have collapsed. Their wages have dropped. Their degrees are wildly expensive.

We have heard facts like these before. But it is time to move beyond the raw statistics and work out what they all add up to, not just financially but psychologically. These trends combined are changing the way young people feel and behave, and as a result, the shape of the economy itself. 

The big picture: shifts in pensions, housing and employment have transferred more risk and instability on to the shoulders of young people. This is happening to varying degrees in most developed countries — the problems emerged earlier in the US, while in southern Europe, the changes to the labour market have hit particularly hard.

Yet economists sometimes miss how these issues can compound one another.

Not owning a home in your thirties or forties feels more nerve-racking when you have no idea how much income you will have in retirement to pay for rent or a mortgage. The state was smart to enrol employees automatically into defined contribution pensions, but the amount going into these pots is too small, and people are still left to bear all the investment risks on their own. Similarly, not having a permanent employment contract feels more worrying when it means you have no chance of persuading anyone to give you a mortgage. 

This is neither an appeal for sympathy nor an attempt at generational one-upmanship. Previous generations had different — often far worse — hardships to endure. But however you feel about young people, if you want to understand the economy, you have to acknowledge the shifting sands under their feet.

It might be expected that a generation living with uncertainty will cling to whatever security they can. That is exactly what the UK labour market data show. Research from the Resolution Foundation think-tank suggests young people have become more risk averse in the jobs market than previous generations. They switch from one employer to another less frequently and are less willing to uproot themselves geographically for a new job.

That is remarkable given that more of this generation are graduates and renters — characteristics that typically encourage ease of movement. Yet the share of under-35s who move regions for work has dropped by one-fifth since 2000. Perhaps this makes sense: if your work schedule or your housing situation is unpredictable, it helps to stay near your family support networks. 

While it may be rational, this excess of caution is bad for the economy. It is probably helping to suppress real wage growth, since the best way to secure a pay rise is to switch employer. Less fluidity in the job market means fewer people moving to where they can be most productive. 

The share of under-35s who move regions for work has dropped by one-fifth since 2000 . . . It is probably helping to suppress real wage growth

The irony is that millennials have many new opportunities; they are the best-educated generation ever; they can start companies from their bedrooms. But people are more likely to take risks when they have something to fall back on. It should be no surprise that the UK’s self-employed are more likely to be homeowners than renters, and much more likely to own homes worth more than £500,000. 

One could argue that young people have the security of knowing that one day they will inherit the housing wealth of their parents. But that is a dismal fallback plan for a country that aspires to meritocracy. Whether or not the “inheritance safety net” will catch you has nothing to do with how bright you are or how hard you have worked and everything to do with whether your parents own a house (especially a house in the south east of England.) Less than half of millennials who do not own homes have parents who are homeowners. And more than 80 per cent of millennials who already own their home have homeowner parents. 

Britain needs to offer its young people a new deal: a base level of security that enables them to be confident and take risks. If not, the opportunities created by the modern economy will be wasted on all but the wealthy.

The writer is a commissioner on the Resolution Foundation’s Intergenerational Commission

sarah.oconnor@ft.com

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