Intergenerational Progress: Stagnant or Just Slowing Down?

 

Parents want their children to prosper.  However, there’s an increasing sense that young Americans today are not as financially well-off as previous generations were in the same stage of life.  Whether Americans are continuing to progress from generation to generation has become the subject of a growing literature in economics and other social sciences.    

Research by Chetty (2014, 2017) found that intergenerational progress had largely stopped, that inflation-adjusted earnings of the typical (median) young American is no higher than that of his or her parents at the same age.  This conclusion has been challenged by Twenge (2023) and others who argue that young people today are materially better off than their parents.

The most recent high-quality study to take a crack at this question is Kevin Corinth (AEI) and Jeff Larrimore’s (Federal Reserve Board) 2024 paper.  Their study draws on data from the Current Population Survey to measure the income of couples and households over the sixty-year period from 1964 to 2023.  The focus is on adults in their prime earning years (ages 36 to 40). 

Economies and societies are dynamic.  Studies of economic and social change over time always entail difficulties as researchers try to identify the factors driving observed changes: labor force participation, education, social policy, etc.  The authors don’t try to offer a definitive explanation of the factors driving changes in income between generations.  Rather, they present several sensitivity tests which invite readers to be introspective and to sort it out on their own.  This contributes to the enjoyment of the paper.   

Corinth and Larrimore’s results are in a middle ground between Chetty and Twenge.  Corinth and Lattimore find that the rate of income growth between generations has slowed down but, unlike Chetty, progress has not stopped entirely.  Every generation is doing better than the preceding one.  However, the largest gains have accrued to those at the top of the income distribution and the highly educated.  This is consistent with previous work that documents the growth of income inequality in American society. 

Millennials have often been characterized as an unlucky generation having experienced two deep economic downturns in early adulthood.  However, Corinth and Larrimore find that Gen X is the unluckiest generation.  Gen X median income growth is the lowest of any generation, less than 10 percent in terms of market income.  By contrast, Millennial income growth is several percentage points higher though still in the low teens.  Figure 2 from their paper illustrates.  Note that the difference in earnings at each age is growing smaller with each succeeding generation

For me, the most interesting aspect of their work concerned the difference in income growth when measured in terms of market income versus a post-tax, post-transfer basis.  Gen X and the Millennials income growth is several points higher when measured on a post-tax, post-transfer basis.  Silent and Boomer income growth was not.  One can speculate that this is due to the enactment of fiscal policies over the last two decades that emphasize tax cuts along with increased social spending all of which are financed through government borrowing.  Deterioration in America’s fiscal position is going to make it more difficult for future generations to enjoy increases in purchasing power due to tax cuts and growth in transfer spending. 

The authors briefly touch on the economic condition of Gen Zers in their study.  Gen Z is too young for their focal age range (36-40).  The oldest Gen Z in 2023 was 27 years of age.  However, their study shows the rise in dependency on parental support in each succeeding generation (as measured by the proportion of members dependent on parents for 50 percent or more of their income).  The authors find that parental support is the only reason that younger Millennials (30 and below) had higher incomes than Gen Xers.  That is, market incomes for those 30 and under have been stagnant which contributes to the perception that intergenerational progress has stalled.  In this regard, their findings are similar to Chetty’s. 

Young Germans Shifting to the Conservative Parties

 

A new survey shows a growing affection for conservative parties among young Germans.  Like young Americans who increasingly find a second Trump presidency more attractive than four more years of the failures of Joe Biden, young Germans are finding a lot to like in the economic program and immigration platform of the three major right-of-center parties in Germany. 

The conservative Alternative for Germany (AfD) is now the most popular of Germany’s multiple political parties among German’s between 14 and 29 with 22 percent support according to the findings of the 2024 Jugend in Deutschland a survey. 

The AfD is the closest thing in Germany to the MAGA wing of the Republican Party in the United States.  The AfD’s economic program calls for deregulation and less state control of industry.  The AfD seeks a negotiated solution to the war in Ukraine.  And the AfD opposes Germany’s open borders immigration policies. 

The second most popular party among young Germans according to Jugend in Deutschland is the Christian Democratic Union/Christian Social Union (CDU/CSU) with 20 percent support.  The CDU/CSU most closely resembles the establishment Republicans in the United States. 

The pro-business Free Democratic party get 8 percent support among young Germans. 

In total, 50 percent of young Germans support the three pro-economic freedom parties. 

In contrast, only 35 percent of young Germans support the three parties of the left on economic policy.  The Greens have 18 percent support, the Socialists 12 percent and the former communists 5 percent. 

Young Germans are drawn to conservative parties because of their messages on economic policies and immigration according to Klaus Hurrelmann, a Professor of Public Health and Education at the Hertie School in Berlin, who was interviewed by the European Conservative. 

“The assumption that young people are left-wing is wrong. We can speak of a clear shift to the right among the young population. … The AfD has clearly succeeded in presenting itself as a protest party for the traffic lights and as a problem-solver for current concerns.”

Among the chief concerns for young people is not climate change, LGBTQ rights, or gender ideology, as the mainstream globalist press might have it, but rising costs and a lower standard of living due to inflation (65%), the wars in Ukraine and the Middle East (60%), and overpriced and scarce housing (54%).

Young Germans turned out heavily for freedom-oriented political parties in the previous German election in response to the COVID lockdowns and the country’s rising pension debts. 

 

Gen Z Carries More Credit Card Debt

 

Members of Generation Z are increasingly relying on credit card debt to make ends meet. 

The Wall Street Journal reports that the average credit card balance of 22-to-24-year-olds in the United States is $2,834 based on data from TransUnion, a credit dent reporting agency.  Debt levels are almost 30 percent higher than in 2013 after adjusting for inflation.  

The result is an increase in financial stress among Gen Zs.

Younger people with higher debt are more delinquent on credit-card payments and need to rely on family for help if they lose their job, say economists and financial advisers. They also often delay life milestones, including homeownership and marriage, say the economists.

“This is a generation that is feeling financial stress in a more acute way than millennials did a decade ago,” said Charlie Wise, head of global research at TransUnion.

Some of the factors driving the rise in credit card debt.

1. Rising rents.  Young people tend to be renters.  Apartment rents are on a tear.  From March 2020 to March 2024, apartments rents are up by 22 percent according to data from the BLS. 

2. Salaries are stagnant.  According to the Federal Reserve Bank of New York, the median salary of a new college graduate in 2024 was $60,000, little changed form the inflation adjusted median of $58,858 in 2020. 

3. Interest rates are much higher today than just two years ago.  High rates on credit card debt make it more difficult to chip away on principal balances.   

4. Doom spending to relieve stress. 

The result is a generation of young people that increasingly fret about money.  A recent study by the accounting firm Ernst and Young found that 52 percent of young Americans are concerned about not having enough money.