Timing can be…well, almost everything. Imagine how fortunate those who were born between, say, 1983 and 1990 felt when graduation from school, university or college coincided with the Great Recession, and/or its greatly disappointing aftermath. Thus far, this group has had to wait up to seven long years to get properly integrated into the economy. That’s a huge chunk of anyone’s life, let alone their career, and it can make a permanent impression on a generation. Will this bunch ever be fully brought into the economy, or are they forever destined to be different?
Labour market statistics tell the tale. Millennials that can’t find work can show up as unemployed, but only for so long. Discouragement leads many to simply give up the job search, and at that point, statistically they drop out of the market. They’re still counted, though – as ‘non-participants’ in the labour force. Participation rates are published monthly in most developed economies, and in recent years, movements have been dramatic. Check out the US numbers: labour force participation fell during the recession, but instead of climbing again when job growth resumed, it continued downward, year after year. This affected different age groups, but millennials were hit hard. Prior to the recession, average participation for the 25-34 age group was over 83 per cent. It fell a full percentage point by 2010, and then continued to drop, losing about 0.2 per cent every year – very unusual for a time of impressive employment growth.
What causes this? Well, armies of people lost their jobs in the Great Recession. Recall that companies saw not just economic collapse, but there was also a great risk of financial implosion. That caused companies to lay off workers much more quickly than normal. When growth resumed, there were a lot of skilled people to choose from – apparently about seven years’ worth – and as such, companies may well have been able to tap into this pool, avoiding the additional costs of training up new graduates. Trouble is, that seems to have been going on for a long time, long enough for companies to get used to it, and maybe even to lose the knack of bringing in the less-experienced.
Why is this critical? Well, ‘losing’ any generation is tragic, but this one is particularly important for one key reason: they are the current moment’s ‘leading-edge’ consumers. But without proper engagement, they don’t have the incomes to consume as their forbears did. American millennials into their thirties are still living with parents in proportions unseen in recent history. They may be forming new households, but it’s not resulting in homebuying, and all the consumption that goes along with it. That cheats the economy out of a lot of activity – and we all feel it.
Many believe that there has been a cultural shift: millennials just do things differently. For instance, they are not as interested in owning cars, forming households in the same way, or owning their dream home. Others cite a technical shift: there just isn’t as much employment to be had, as companies are more capital-intensive, and only have jobs for highly-skilled technicians. There is some truth in these observations – but have things really changed that much?
Not likely. First, Canada saw a jobless recovery in the 1990s as government austerity nixed growth. Generation-X workers bore the brunt, and the result was much the same as for today’s millennials. Back then, lots of structural reasons were given for the changed behaviours of the new generation. But once the austerity period was over, one by one those ‘structural’ changes disappeared. Add jobs and money, and this generation started consuming just like previous generations. Millennials are likely much the same. Second, the technical changes we see today produced some of the lowest unemployment rates on record just a few years ago; it’s hard to believe that just a few years on they are the cause of a hollowing out of the labour market.
The bottom line?
Is this critical group ever coming back? Yes – in fact, they already are. One of the most exciting recent developments is the return of US millennials. In just the last six months, their participation rate has jumped from 80.5 to 81.8, and the trend is sharply up. This could have huge implications not only for the US, but for the world economy. It could well boost leading-edge consumption by double-digits, and seven years beyond the crisis finally ring in true recovery-style growth.