Generation game victors
The recession is being felt by all ages. But are young adults just starting out on the career road feeling the pain more than their baby-boomer parents? And what does the future hold? Our two local economists look across the age gap
18-34 Year Olds
Richard Ramsey, chief economist at Ulster Bank,
The recession has affected certain age groups more than others. Since the summer of 2007, it has certainly not been all sun, sea and sangria for the Club 18-34 age group. Almost 60% of the rise in unemployment during Northern Ireland’s downturn has occurred within this age group. Indeed, the number of individuals aged 18-34 claiming unemployment benefits is now 5% higher than in 1998, when the Good Friday Agreement (GFA) was signed.
Within Club 18-34 there are two distinct groups that are critical to the economy. First, there is the 18-24 category, or youth population, which contains the vast majority of the higher-education student population. This group provides a vital source of skilled labour for the future and influences an economy’s growth potential.
Second, there is the household formation cohort of 25-34 year-olds, with the average first-time buyer (FTB) aged 29. The numbers and economic status within this group have a significant bearing on housing demand either within the rental or home-owner sectors. In turn, this drives or leads to stagnation within the wider housing market.
NI’s youth unemployment rate of 21% (UK=18%) is now more than double the rate when the GFA was signed. Our youth population also has the lowest wages within the working-age population, with the average full-time wage (£14,500) or just 55% of the NI average.
But with lower wages there is a higher propensity to consume relative to those on the average wage. As a result, youth unemployment has hit consumer-sensitive sectors such as leisure, retail, gyms, pubs etc.
Nevertheless, our youth unemployment rate still compares favourably with Spain (43%), Greece (33%) and Italy (29%).
Spain’s youth unemployment rate is the highest in the EU, with Germany (9%) and the Netherlands (8%) the lowest.
This has fuelled fears of a graduate youth exodus from the ‘Club Med’ economies. Similar concerns are emerging in NI with the supply of graduates increasingly outnumbering the demand for graduate positions. Invariably, the graduate response has been to enter employment at a level(s) below their qualifications or these qualifications are not utilised, leading to ‘skills fade’.
Looking ahead, a growing number of graduates face the stark choice of unemployment, under-employment or emigration. The ‘gap year’ will increasingly be adopted as an unemployment avoidance tactic rather than the rat-race deferral strategy it once was.
For many, paying off student debt, and ultimately buying a house, will be deferred.
Tuition fees have become a part of student debt since 1998. In future, tuition fees will be come even more significant with annual fees of up to £9,000 per year likely to make any prospective student think twice about the expected return from their investment.
Moreover, they will move into the household formation category with greater levels of debt relative to their predecessors. This, in turn, will impact upon mortgage affordability and therefore put downward pressure on house prices.
Earnings rise with age, with the 25-34 cohort enjoying an average salary of £22,000 pa, or 83% of the NI average. Like the youth cohort, this age group has a higher than average propensity to consume its income rather than save. Both age-groups will be harder hit, relative to the NI average, as the rise in indirect taxes (eg VAT) alongside food and energy inflation will account for an increasing share of disposable incomes.
Arguably the biggest shock to the 25-34 category was the housing boom and bust. Many purchased houses at levels that will take the best part of a decade to return to. Negative equity is a concept that has become all too familiar to many of those first-time buyers who bought properties not just at the 2007 peak but during 2006 as well. Many of the ‘class of 2006/07’ will be unable to trade up and face the prospect of raising a family in inappropriate accommodation.
This cohort is also the category with the highest levels of entrepreneurial activity, and many applied their flair in property investment. While many rue the day they purchased houses at what proved to be inflated prices, driven by the insatiable appetite of the ‘entrepreneurial’ buy-to-let investor, the rampant house price inflation was actually a godsend for an even greater number.
Those who thought they had missed the boat have been spared a massive financial headache and negative equity trap. Not only has the boat returned, but the red carpet has been rolled out with prices down 50% from the peak.
Despite this reversal, rising unemployment, job insecurity and the lack of large enough deposits are keeping FTB mortgage activity at levels 75% below the pre-credit crunch average. This in turn has led to stagnation in the wider market with total activity more than 60% below normal levels, all at a time when interest rates are at record lows and set to rise. The latter may trigger a surge in buy-to-let properties coming back on to the market in 2012 and beyond at prices that will be good news for the future first-time buyer.
In short, a significant proportion of NI’s Club 18-34 will no longer be able to afford the sun, sea and sangria in the way the age group once did. Indeed the only SUN some might see for some time is Student debt, Unemployment/underemployment and Negative equity.
Esmond Birnie, chief economist with PwC in N.Ireland,
Ask two economists the same question and you’ll be lucky to get only three answers, particularly when it comes to the impact of the economy on different parts of society.
So, when the Office for National Statistics (ONS) revealed that record numbers of people in their 20s and 30s were experiencing financial hardship and moving back home to live with their parents, who suffers the most?
Since 2007, the UK now has twice as many “boomerang” children as anywhere else in Europe, with around 4% of 16 to 29-year-olds returning to the family home each year.
Pity the kids, but don’t forget the parents. Their household, food and living costs are going up, while, in real terms, thanks to changes in taxation and the real value of reward, their income, in real terms, is probably falling and their prospects are grim.
Youth and graduate unemployment may be rising fast, but the economy will recover and opportunities will return, particularly if the Executive can drive new strategies to rebalance the economy.
But when it comes to absolute numbers of jobless, the young are not alone in their suffering.
Over the past three years youth unemployment (16-24 years) increased 75% to 24,000; but over the same period, the end of November 2010, unemployment among those aged 25-49 leapt by 106% to 31,000, with a further 9,000 of those aged 50-plus becoming jobless in 2010.
Experience in Northern Ireland and throughout the UK suggests that those aged 50-plus who lose their job will find it tough to get another one. Around 44% of jobless people aged between 50 and 64 have already been unemployed for more than a year, according to the latest Labour Force Survey, with around 30% likely to end up accepting part-time work in the absence of anything more permanent.
Get older and it doesn’t get better. Last month’s estimate that around 17% of UK residents could live to be 100 translates into 30,000 Northern Ireland consumers trying to make ends meet for a very long time. The end of the ‘official’ retirement age is only meaningful for those seniors who can find a job and are fit enough to work.
Say hello to retirement and, if you’ve not spent a lifetime in the public sector, a pension shock.
For baby boomers with the usual mish-mash of final-salary and money-purchase schemes from a varied lifetime of employers, this is not the time to retire. The poor investment performance of the stock market (the end of 1999, the FTSE 100 index peaked at 6930 points; today the index is at around 6058) means a smaller pension pot and less money to buy an annuity.
For a single 65-year-old man, retiring in 1990, a £100,000 pension pot could have secured an annual income of £15,000. Retire in 2011 and, thanks to longer life-expectancy and falling yields on gilts (government bonds), our baby-boomer’s £100,000 pot promises £6,000 a year.
And it doesn’t stop there: most retirees are suffering now from a jump in the cost of living while failing to benefit from the fall in interest rates because most have paid off their mortgages.
The charity Age UK says those aged between 65 and 69 will see at least £710 wiped off their spending power this year alone because of rises in fuel, food and energy bills, while those in their seventies will see a disproportionate amount of their income coming from savings, which have been affected by record-low interest rates.
Thanks to UK levels of pay and generous pensions, Northern Ireland’s disproportionate number of lifetime civil servants can expect a relatively decent middle age and retirement. But for the rest, raid the attic for the 60s memorabilia and log onto eBay, for the times they are a-changin’.
But despite plunging pensions, juddering joints and the spectre of your children choosing your nursing home, life is not an inevitable tumble from the sunny mountain top of youth into the valley of death. It is, rather, a U-bend.
Historically economists have used money as a proxy for ‘utility’ — the dismal science’s proxy for happiness, but, according to, The Economist, just as policies are measured by their likely impact on GDP and GVA, they should be road-tested against a new one — Gross National Happiness (GNH).
Subjects in 72 countries were asked to rate their personal happiness on a scale of 1 to 10, and what emerged was a U-bend of delight. Most professed themselves happy at 18 but it was downhill from there, ending in the slough of despond at age 46, before heading upwards to reveal that the happiest people were also the oldest.
Stick it out to 70 and the chances are you will be happier than you were at 18 — or at any other time in your life.