A stark generation gap on jobs and earnings has opened up in recent years as “twenty somethings” were hit hardest by the recession but pensioners were protected from it.
In a report published today, the Institute for Fiscal Studies (IFS) said that the income of young adults had fallen by much more than any other age group, and their employment rate had dropped while the proportion of older adults in work remained steady.
Although employment rates among young adults fell in previous recessions, the crucial difference this time was that in-work rates for other age groups were remarkably stable and that young adults were “the most acutely affected by some distance” by the very sharp falls in pay, said the IFS.
Meanwhile, the incomes of pensioners continued to grow and overtook those of working-age households in 2009–10 for the first time since records began in 1961. By 2012-13, pensioner incomes were 5 per cent higher, after being 5 per cent lower when the recession began.
The findings will increase the pressure on the Government to ensure a “fair recovery” in which young adults can “catch up”. Some Coalition ministers are worried about a backlash from younger voters at next year’s general election.
George Osborne, the Chancellor, wooed the “grey vote” in his March Budget with a shake-up of pensions and this group is much more likely to vote than young adults. The latest ComRes survey for The Independent shows that only one in four 18-24 year-olds and 41 per cent of 25-34 year-olds are “absolutely certain to vote” next year. In contrast, 52 per cent of 55-64 year-olds and 66 per cent of those aged 65 and over are “absolutely certain to vote.”
Video: Vince Cable on employment figures
According to the IFS, between the 2007-8 and 2013-14 financial years, the mid-point on the household income scale of 22-30 year-olds fell by 13 per cent, while for 31-59 year-olds it dropped by only 7 per cent and for those aged 60 and over it remained steady.
The squeeze on the “twenty somethings” would have been even worse if more than a quarter of them did not still live with their parents – a proportion which has risen by 7 per cent since 2005-06. Those living at home saw their household income drop by 8 per cent; without their parents’ incomes, the fall would have been 17 per cent.
The employment rate for 22 to 30-year-olds fell by four percentage points, while remaining unchanged for 31 to 59-year-olds. Among those in work, real median pay (before tax) fell by 15 per cent among 22-30 year-olds, and by 6 per cent for 31- to 59-year-olds.
“Young adults have borne the brunt of the recession,” said Jonathan Cribb, a research economist at the IFS and an author of the report. “Pay, employment and incomes have all been hit hardest for those in their twenties. A crucial question is whether this difficult start will do lasting damage to their employment and earnings prospects”.
Chris Goulden, head of poverty research at the Joseph Rowntree Foundation, which funded the study, said: “Over the past year young people aged between 22 –30 in particular have fared the worst, seeing the sharpest rise of those now living in poverty. This is in contrast to pensioners, who the IFS say face relatively favourable conditions. The progress in reducing pensioner poverty shows what can be done with sustained effort - a principle that must apply across all age groups.”
The IFS said that home ownership among 25 year-olds has halved in 20 years: 21 per cent of those born in the mid-1980s owned a home at this age, compared with 34 per cent of those born in the mid-1970s cohort and 45 per cent in the mid-1960s.
For the population as a whole, the recession had different impacts across the UK. Comparing 2007–08 to 2009–10 with 2010–11 to 2012–13, real falls in median income range from 8 per cent in Northern Ireland to 2 per cent in the East Midlands. After housing costs, London saw the joint-biggest fall (with Northern Ireland). The IFS found no clear relationship across the country between pre-crisis income levels and income changes since the recession, saying there was no clear North-South divide.
Catherine McKinnell, a shadow Treasury minister, said: “While David Cameron denies there is a cost-of-living crisis these figures show people have seen a substantial fall in their income since 2010. It is worrying that the IFS expects child poverty – which fell when Labour was in government – to rise under the Tories.”
But an aide to Mr Osborne said: “This shows just how hard Labour's Great Recession hit young people and why it’s vital we keep working through our long term economic plan which is cutting the deficit, creating jobs and equipping people with the skills they need for the future".