4 Things Millennials Need to Know about Economics

Kate Bahn is an economist at the Center for American Progress. Her work focuses on labor markets, care work, entrepreneurship, retirement, the role of gender and race in the economy, and inequality. The views expressed by columnists are those of the author and do not necessarily reflect the views of Site Edit.

Millennials are just entering their prime working years, but we face economic problems that are nearly unprecedented in world history: negative interest rates, underemployment and unpredictable market forces. Here are four things Millennials need to know about the economy as we prepare to shape the 21st Century. (See also: Top 5 Most Common Personal Finance Goals for Millennials.)

1. Millennials Are Earning Less Now, and That Has a Long-Term Impact

According to Brendan Duke at the Center for American Progress, Millennials now are earning less than Generation Xers were at the same age in 2004. Though Millennials at 30 have earnings similar to 30 year-olds in 1984. Now Millennials are more likely to have been to college and are working in an economy that is more productive than in the mid-80s.

Though the job market has improved, Millennials face a 20-year trend of decreasing labor market mobility. Labor market mobility started to stagnate in the year 2000, just as the oldest Millennials were entering the job market. When workers don’t move around, both from job to job and from region to region, employers have more power when negotiating wages. This phenomenon is called monopsony, and it means workers get paid less than they would in a more mobile labor market.

Unfortunately for young people whose careers coincided with this trend, it’s difficult to make up lost earnings from slow years. The effect of initially low earnings is compounded when subsequent raises are lower and you’re less able to save and invest in ways that would provide income in the future.

2. Earning Inequality and Wealth Inequality

Income inequality gets a lot of attention, but wealth inequality is more important to people just starting their careers. The increasing wealth gap has meant that Millennials start off with less in housing wealth than older households. Two factors exacerbating this trend are the growing levels of student debt compared to earlier eras and higher student debt loads for younger people.

Not only do you have a smaller safety net, but without wealth you have little to leverage when wanting to make personal investments like buying a house or starting a business. What’s more, investments like these can be future streams of income, so wealth inequality exacerbates income inequality in a cycle that is difficult to break.

Though income inequality has been a big topic for several years, Millennials need to remember the wealth gap, and pressure policy makers to pass laws that help younger people build their wealth.

3. There’s a Looming Retirement Crisis

Voices in the media often blame Millennials for not putting enough aside for retirement, but the truth is the way retirement savings plans are currently structured makes it hard for younger people to save. Contributions are voluntary, tied to your employer, and if you are lucky enough to have access to an employer-provided plan, you’re even luckier if your employer contributes anything. On top of this, the fraying of economic and social safety nets over the last 40 years has left retirement savings vulnerable to emergency withdrawals.

Seeing the looming retirement crisis that faces Millennials, policy economists and retirement experts have started to imagine the needed changes to retirement policy necessitated by our current economy, like additional government-run supplementary retirement savings on top of social security.

4. Gender Still Matters to Economic Outcomes

We are lucky to be raised after the Women’s Rights Movement and the successes of Second Wave feminism, but that doesn't mean that gender still doesn't negatively affect women’s economic outcomes. The gender wage gap still exists and has held steady at just under 80 cents of a woman's earnings for each dollar a man earns.

But the factors that explain this gap have shifted over time. In the past, women didn't earn as many higher education degrees as men and they had less work experience as a group. In the 21st Century, however, women have almost caught up with men’s labor force participation rates.

These days, the gender wage gap is better explained by occupational segregation, with women going into different jobs than men; also, they tend to be paid less. Furthermore, jobs with more women in them are paid less just because there are more women there. A study from researchers at Cornell found that as more women enter a profession, the earnings go down.

Younger women should remember that gender pay discrimination still exists and needs to be fought with measures like pay transparency in workplaces and laws forbidding employers to ask your previous salary in job interviews, like the one recently enacted in Massachusetts.

These are just some examples of the ways gender affects our economic outcomes, and young women who expected to have a career face many more, like motherhood pay penalties and the continued disproportionate burden women face for unpaid work in the home. (See also: The Gender Wage Gap: Beware Age 32!)

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