Income Inequality: It's Not Just for Older People Anymore


By: Lily Rothman
May 9, 2013

At some point during Blake Eastman's senior year at the University of Southern California, he stopped talking to his friends about their plans after graduation. Eastman, 22, had parlayed a summer internship into a job offer. Many of his classmates, even those with similar credentials, weren't as fortunate. "It's not necessarily awkward but as it gets further in the semester, some of my close friends, you can tell it's stressing them out," he says. "My friends don't really ask about it anymore."

As young millennials like Eastman enter the work force, they're quickly discovering an uncomfortable truth: Inequality, once a phenomenon most prevalent among older Americans with longer work histories, is on the rise among young people. It used to be that all Americans new to the workforce started at the beginning and built up their financial futures over time. It took a while to see who would be a "have," and by how much. Now, the choices--or the lack thereof--available to 20-somethings have already divided their cohort. Although 20-somethings continue to be more financially equal as a group than the general population, newly crunched census data from the public policy group Demos show that gap is closing.

Now more than ever, the lowest-earning Americans in their 20s are making less and the top-earning ones are making more. Between 1980 and 2011, 20-somethings in the lowest quintile of earners have seen their share of all income in the U.S. decline from 3.6% to 2.9%, compared to smaller a drop (from 3.3% to 3%) in that quintile of all Americans 20 and older. Low-earning 20-somethings used to take home a larger piece of the pie than their average low-earning counterparts of all ages, but now they've got a smaller piece. At the same time, young Americans in the highest-earning quintile have increased their share of income more than the overall population of high-earners has.

It's only gotten worse in the last few years--and that trend applies to income figures as well as relative earnings. The only 20-somethings making more money than their counterparts a generation ago are the highest earners. Adjusted for inflation, both median and mean incomes have increased since 1980 for every earnings group in the general population; even in the lowest fifth of earners, those figures have gone up, despite the 2008 financial crisis. But that's not the case among 20-somethings. For the people in that age group who earn the least, median and mean incomes have dropped about 30%. Every other quintile of the young population has also seen a drop in income--except for the highest earners, who have seen their medium income increase 3.6% and their average income go up 6.1%.

Take education into account and the disparities are even starker. Among the general population, those with no education beyond a high school diploma have seen their share of all income decrease by 12% since 1980, from about a third of all income to less than a fifth. Those with bachelor's degrees have seen their share increase by nearly 10 percentage points, to more than a quarter of all income nationally. It's even more extreme for those with advanced degrees. Among 20-somethings, those trends are amplified, with young college grads earning even more and those with only a high school education earning even less.

"We've seen a real pulling-away among the well-educated young people in terms of their income," says Demos' VP of policy and research Tamara Draut. "The reality is, if we remember that most young people don't have advanced degrees, what we see here is a majority of a generation whose average earnings have seriously declined in one generation."

It hasn't been all good news for young Americans with college degrees: rising school costs have loaded them with debt and returns on higher education seem to be diminishing. Median income for 20-somethings with a BA declined from $35,231 in 2000 to $30,547 in 2011. As Demos analyst Robert Hiltonsmith points out, the increasing share of income going to the well-educated isn't necessarily because they're making more, but because others are making less.

Education isn't the only factor at play: Timothy Noah, author of The Great Divergence, says the financial crisis is also to blame. Demand for higher education--particularly degrees beyond a BA--has been increasing for a while, helping those at the top. Meanwhile, those at the bottom were hurt most by the economic crash in 2008. The young poor who saw their incomes fall have not been able to recover in the same way that their more-established peers did. (For example, for the bottom fifth in earnings, median income adjusted for inflation peaked around 2000 but has since recovered past 1990 levels; for 20-somethings at the bottom, median income also peaked around 2000 but remained in 2011 at a dollar amount below 1980 levels.) "My guess would be that the statistics for the bottom quintile are really about the recession," Noah says. "The recession has been devastating, and particularly devastating for young people. It's more dramatic for young people because they're just entering the job market."

The story of the numbers doesn't foretell a bright future for Millennials. "What the data really show are that, for the majority of young people in this generation, they are currently and most likely not going to surpass the incomes of their parents," says Demos' Draut. That's particularly true for young people with no higher education, facing the double whammy of a dearth of jobs and low wages in the positions that do exist.

Experts disagree on how best to help this struggling generation. Draut argues the federal government should take a larger role by indexing minimum wage to inflation, strengthening unions and expanding the social safety net to support young families. Nicholas Eberstadt, a political economist who has written about millennials and inequality for the American Enterprise Institute, says the problem is partly cultural. Failures in education and the job market have been damaging, he argues, but he also faults lifestyle changes like higher divorce rates and over-reliance on government aid.

Even if Eastman and his friends aren't talking about their predicament, young Americans haven't given up hope. In spite of the numbers, polling suggests that 20-somethings from all backgrounds are still optimistic about their financial futures. And that matters. "Optimism and hope are really important protective qualities," Draut says, "and we need people to retain that optimism."

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This page contains a single entry by CFED published on May 10, 2013 3:57 PM.

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