Prosperity has left young adults in the dust.
An overlooked story in today's economy is the stunted income growth experienced by much of the population. But no group has been affected like young adults. People aged 20 to 24 years are 41-per-cent worse off financially than their counterparts were in 1976, Statistics Canada data show.
This finding comes out of a project that Globe multimedia editor Stuart Thompson and I have been working on since I wrote a column last year comparing the financial realities I faced as a university graduate in the mid-1980s with today's grads. The goal was to create an interactive online tool that people could use to compare recent numbers on incomes, housing prices, unemployment rates, tuition fees and student debts to the year they graduated.
The "Who Had It Tougher Time Machine" is now available and it amplifies my finding that today's grads, the demographic group known as Generation Y, have it tougher. They face a particularly intense version of this country's income growth challenge. Let's dispense with the basics right up front. Tuition and house prices have both been rising at higher rates than income, and student debt levels have increased sharply. In fact, income hasn't actually risen if you measure in terms of purchasing power. In 2010, the most recent year for which data are available, the median income for people aged 20 to 24 was $13,800. In 1976, our base year because that's when detailed Statistics Canada income data start, that same income was worth $23,400.
Statistics Canada uses 2010 constant dollars for this comparison so as to allow for a clean comparison of purchasing power after factoring in inflation. What we get from this view is a picture of stagnant or declining incomes across almost all population segments (see chart).
Younger Canadians have seen the worst of it, though, and not just those in their early 20s. The trend in total median income (employment plus investment income) among people up to their mid-40s is for them to be poorer than was the case decades ago.
Benjamin Tal, deputy chief economist at CIBC World Markets, said today's income levels for young adults are affected by the fact that significantly more of them are attending university and college as opposed to working and earning money. This is a positive development because it suggests young people are investing in an education that, in theory at least, will help them become better earners as they age.
The decline in the purchasing power of people in their 30s and early 40s suggests that not everyone is benefiting from a postsecondary education, though. Mr. Tal said the growing use of technology and machines to replace human workers, outsourcing and the baby boom's big presence in the job market have all had an effect on today's twenty– through fortysomethings. "Labour market issues are being translated into wages and income," he said.
Another issue is a mismatch between the skills and education young people are acquiring in their postsecondary educations and what's needed in the work force. Mr. Tal uses the phrase "people without jobs and jobs without people" to describe this situation.
The generation that has made out comparatively well in terms of purchasing power over the past few decades is the one aged 65-plus. Mr. Tal said a combination of good fortune and good habits account for this.
Today's seniors were active in the work force at a time of plentiful jobs and decent wage growth, he explained. They also benefited from years of high interest rates on savings, and strong stock market returns in 1990s. Where they helped themselves was in their commitment to saving. Mr. Tal said the savings rate decades back was 20 per cent, compared with about 2 per cent now.
As for young people, as a cohort over the past four decades, the Who Had It Tougher Time Machine shows their purchasing power took a big hit in the recession of the early 1980s and then another when the economy faltered in the early 1990s. The latest economic setback derailed a modest but steady recovery from the lows of the late 1990s. Today, the purchasing power generated by Gen Y's median income is close to $10,000 less than it was at the end of the 1970s.
"In a way, it was easier for young people in the past than it is now," Mr. Tal said. "Basically, you're running faster just to stay in the same place today."