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America’s younger workers losing ground on income

Posted on: March 7, 2006

America’s younger workers losing ground on income

In the race to get ahead economically, America’s young workers are falling behind.

A new survey shows that between 2001 and 2004, median incomes fell for householders under 45, even as they rose for older ones.

Income
fell 8%, adjusted for inflation, for those under 35 and 9% for those
aged 35 to 44. The numbers add new weight to longstanding concerns
about whether younger generations of Americans will achieve living
standards that are better — or at least equal to — those of their
parents.

"It’s
a scary question," says Carrie Brown, who runs the Blue Frog Bakery in
Boston. She says that for now, at least, she’s not keeping pace. And if
she and her husband have children, she says she’s not sure if her
children will enjoy the same lifestyle she did while growing up.

Her
concern is shared by many Americans who follow the baby-boom
generation. One often-voiced worry is about generational fairness in
tax burdens, given the prospect of a soaring federal tab in coming
decades for Medicare and Social Security as the number of elderly
Americans rises.

But today, even long before
any such fiscal shock arrives, younger workers are already feeling
squeezed by other trends. An increasingly competitive global economy,
the rising cost of higher education and health care, and changing
patterns of family life are among the factors that have combined to
make the career environment tougher, economists say.

"There’s
no guarantee" that US living standards will continue to rise, says
Laurence Kotlikoff, a Boston University specialist in generational
economics.

For now, the prospect of a
generation underperforming their parents may be more of a fear than a
reality. By many measures, America continues to grow more prosperous
with each passing decade.

A long-term trend
of falling interest rates since the 1980s, for example, means that even
after the recent runup in home prices, houses are generally more
affordable today than they were 20 years ago. And homes today contain
gadgets — from a child’s video-game system to an adult’s pocket e-mail
device — that didn’t exist a generation ago.

At the same time, however, evidence of economic challenges also abounds.

Over
the past decade, the volume of federal student loans tripled, reaching
$85 billion in new loans last year, according to a new book by Anya
Kamenetz, "Generation Debt." Nearly a quarter of college students are
using credit cards to pay some of their tuition costs, she writes.

Also,
the median income for men under age 44 was significantly lower in 1997
than in 1970, after adjusting for inflation, according to a long-term
analysis by the Census Bureau in the late 1990s. For those over 45,
incomes barely held their own during that period.

The
entry of women into the workforce in those decades has helped push
median family incomes up over time. But even when men and women are
included together, younger workers (age 25-34) are earning well below
what they did in 1970. And at all ages, evidence suggests that families
are putting in more hours of work to make their household incomes rise.

But
even with extra time at work, median family income has barely budged
since 1995 for householders below 45, up about 5% after inflation
through 2004.

Those aged 45 to 54 did better,
with family incomes rising 23% during that period, according to the
numbers released last week from the Federal Reserve Board.

And
since the end of 2001, at the outset of the current economic expansion,
younger workers again have underperformed, with incomes generally
falling while their older counterparts have seen incomes rise.

That
all helps explain the subtitle of Ms. Kamenetz’s book: "Why now is a
terrible time to be young." The book is partly a manifesto on
generational politics, as she eyes the cost of baby boomers’ retirement
for her generation.

It’s unfair, some
economists say, to blame the baby boom generation, since the larger
issue is that health care costs keep rising and people keep living
longer in general. Rising health care costs are hitting younger workers
in another way, too. As benefit costs rise, employers often have less
left to boost wages.

Another factor behind the weak incomes for younger generations may be shifts in household composition.

The
past few decades have seen a rise of single-parent and non-family
households, which typically have lower incomes than married-couple
households.

Perhaps most significant, though,
is a labor market that has become tougher on workers, especially those
with lower skills. Global competition has compressed wage gains.

Thus,
despite a boom in worker productivity, "what the typical family or
typical worker has to show for it has been remarkably little," says
Dean Baker, an economist at the Center for Economic and Policy Research
in Washington.

In his view, the biggest issue is the rising inequality of incomes during the past quarter century.

At
the Blue Frog Bakery, Ms. Brown sees that trend among her own peers.
"People are either doing phenomenally well or living paycheck to
paycheck," she says, as the smell of fresh croissants wafts through the
air.

Still, many economists say progress is possible.

"In
the long run I’m optimistic," says Michael Shields, an economist who
specializes in demographics at Central Michigan University in Mount
Pleasant.

What worries him most, he says, is
the long work hours for his children who are just out of college. "When
are they going to be able to take a break?" he asks. "I don’t see it."

Copyright 2006, The Christian Science Monitor

Christian Science Monitor
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