Those Millenials really have a tough time

In yesterday’s commentary, I have shown how cognitive ability and increased income amongst Swedes increased the aversion to higher taxation and government redistribution of income. This effect may go some way to explain why Millennials in the US and Western Europe are sympathising with socialist and left-leaning policy ideas.

In the US, policy newcomers like Alexandria Ocasio-Cortez (29) promotes a “Green New Deal” together with her decidedly not young colleague Ed Markey (72) in the Senate. This Green New Deal at its heart tries to increase spending on projects that reduce greenhouse gas emissions and foster sustainable technologies. The idea is that like the New Deal in the 1930s, deficit spending should create jobs and higher taxes should help fight income inequality.

At the same time, Labour leader Jeremy Corbyn, a lifelong socialist who has been at the left fringes of his own party for decades, has become a hero amongst young Brits. The shift to the left in the Labour Party has gone so far, that some MPs have split from the party similar to the Social Democrats’ split from Labour in 1981.

As someone on Twitter once quipped: “Socialism is supported by people who never experienced socialism and hated by people who experienced it”. But looking back over the last 20 years, there are clear reasons why Millennials (defined as those born between 1981 and 1996) promote higher taxation and more government redistribution: For them, the economy has simply not worked the same way as for previous generations. Millennials entered the workforce somewhere between the 2000 recession and the 2008 financial crisis. In both circumstances, finding a job was hard and salaries were depressed. The gig economy was a way to cope with these circumstances, but it means lower average income and lower job security than a regular job. This was not by choice which can be seen in US labour market data where more and more members of the gig economy opt for regular steady jobs now that they become available.

To be sure, Millennials have higher educational attainment than previous generations with 39% reporting a bachelor’s degree or higher compared to 29% of Generation X (born between 1965 and 1980 like yours truly) and 25% of Baby Boomers (born between 1945 and 1964). But what does all that educational attainment help if one cannot get a job or only a poorly paid job? Our chart shows the result of a study of Pew Research Center that compares the average household income of different generations of Americans at age 25 to 37 (adjusted for inflation). While average income for working class people with no university education have hardly increased for decades, even university-educated Millennials face lower income than their parents and grandparents. No wonder they feel the system is rigged and that individual skill and effort does not help one to advance in life. History teaches us that these developments of declining wealth or lack of opportunities are fertile ground for populists on both the left and the right of the political spectrum and as long as this does not change it seems unlikely that the political centre will regain its old strength.

The result is likely a continued polarisation of politics and with it a higher likelihood for more extreme economic policies, be it the proposed nationalisation of utility companies and higher taxation by politicians on the left or mercantilist and protectionist policies proposed on the right end of the spectrum. Already today, Gen X and Millennials together outnumber Baby Boomers and older voters and in 2019, there will be more Millennial voters in the US than Baby Boomers. As we enter the next decade, economic policy is likely to enter a new “experimental phase” when new concepts will be put into practice or old ideas from decades past will be revived to provide more opportunities for younger generations.

Average household income at age 25 to 37 (adjusted for inflation)

Source: Pew Research Center.