Written by Steven Hansen
I worry about the Millennials – their employment, their student debt, their lack of skills training. Society’s future rests with the incoming generation, and recently so much has been published (including opinion polls) indicating Millennials will be worse off than their parents.
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But first some housekeeping. Last week I wrote on full employment – with my analysis / opinion being we had a ways to go to get to full employment. Since publishing this post, Bill Mitchell (billy blog) came out with more compelling evidence of the shortfall of full employment. One of his graphs says it all:
I computed the ‘necessary’ employment series based on the age-adjusted potential labour force (dark green line in the following graph).
The light blue line is the actual employment as measured by the BLS and the dotted red line is the level of employment that prevailed in November 2007 (the peak before the crisis).
This allows us to calculate how far below the 4.4 per cent unemployment rate (constant participation rate) the US employment level currently is.
There are two effects:
The actual loss of jobs between the employment peak in November 2007 and the trough (January 2010) was 8,582 thousand jobs. However, total employment is now above the January 2008 peak by 6,561 thousand jobs. This gain in jobs is measured by the AB gap in the graph which shows the gap in employment relative to the November 2007 peak (the dotted red line is an extrapolation of the peak employment level). You can see that it wasn’t until July 2014 that the US labour market reached the November 2007 peak employment level again.
The shortfall of jobs (the overall jobs gap) is the actual employment relative to the jobs that would have been generated had the demand-side of the labour market kept pace with the underlying population growth (Required Employment Adjusted for Ageing) – that is, with the participation rate at its December 2006 peak and the unemployment rate constant at 4.4 per cent. This shortfall (BC) loss amounts to 3,660 thousand jobs. This is the segment BC measured as at April 2017.
On to this week’s subject Millennials – the strata of people under 37 years old. This generation is roughly 1/4 of the potential workforce.
When you stratify the working years population by age – one realizes that it is the people over 55 and between 20 to 34 are currently doing better than the rest of the population strata.
Index of Employment Levels – 55 and up (blue line), 45 to 54 (red line), 35 to 44 (green line), 25 to 34 (purple line), 20 to 24 (light blue line), and 16 to 19 (orange line)
And even the employment participation rates are better than 50 years ago.
Some say relative to 50 years ago, the the income of the under 35 strata is worse off. This does not appear to be true as all strata is doing better than 50 years ago. From Advisor Perspectives:
The real starting salary of college grads is basically unchanged in the last 50 years. From National Association of Colleges and Employers is an inflation adjusted chart of average starting salary of university grads:
This means that reports of lower incomes for this generation are incorrect.
What about housing? From jparsons.net:
The above chart estimates the market value of today’s median-priced house over a 40-year period, thus controlling for the fact that housing sizes have changed over time. The thick red line represents real house prices. For those unfamiliar with economic terminology, “real” prices are prices that have been adjusted for inflation. The thick blue line represents nominal house prices. The thin lines represent the pre-bubble (1970-1999) trend lines.
There is no question that real median home prices have increased – likely 40% in the last 45+ years. Consider that for a 30 year loan on $100,000 at 4% – the monthly payments are $480. In 1970, the interest rates were 8.5% making a $100,000 loan payments $770. Few Millenneals have the cash to purchase without a mortgage – and it is likely REAL mortgage payments are cheaper in 2017 than 1970. The costs of real home ownership are not an increased headwind for Millenneals vs. 50 years ago.
The only major disadvantage I can find for all generations is student debt. Obviously it hits the younger ages harder as income generally rises with age – and the average payment is slightly less than $300 per month. Roughly 30% of Millenneals (25 million borrowers) have student loans. On the other hand, University education is higher for this generation Vs. 50 years ago – which should equate to higher earnings to offset this repayment for many.
Overall historically Millenneals are experiencing nearly the same headwinds and tailwinds as previous generations. I wish I had my smartphone 50 years ago. And with all the benefits of the 21st century – I do not believe Millenneals are disadvantaged.
Other Economic News this Week:
The Econintersect Economic Index for May 2017 improvement trend continues – and the index is now forecasting normal growth for the first time since early 2015. Six-month employment growth forecast indicates modest improvement in the rate of growth.
Bankruptcies this Week from bankruptcydata.com: Marsh Supermarkets, LLC
