America's younger workers losing ground on income

Mark Trumbull | Staff writer of The Christian Science Monitor

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

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

Income fell 8 percent, adjusted for inflation, for those under 35 and 9 percent 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 healthcare, 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.

The signs include:

• Rising debt levels. 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.

• 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.

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

Those aged 45 to 54 did better, with family incomes rising 23 percent 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 healthcare costs keep rising and people keep living longer in general. Rising healthcare 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 nonfamily 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."

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