It is usually the young people who suffer the most during a recession. In the 1990s the term Generation X was coined to describe the age groups born in the 1960s and 70s, and who entered working life right in the middle of the recession. The worry was that these age groups would end up going from one temporary job to the next without any hope of a better future. In Finland, the recession of the 1990s quickly deepened into a depression, but it was still fairly short-lived. Against all expectations, the majority of the young people of Generation X found their place quickly even in Finland and caught up with the standard of living of previous generations.
After the financial crisis developed countries have gone through a long period of slow economic growth, and during this time Generation Y, born in the 1980s, have been trying to find their place in the labour market. In many ways, the situation for this generation is looking more challenging than it did for Generation X. Even though the recession is almost over, there is no boom on the horizon like there was the last time around, neither in Finland nor elsewhere in the world. As the population ages, the capital stock crumbles and the productivity of work is lagging, the danger is that for a long time the economic growth will remain slower than what we were used to before the financial crisis.
In Finland, the recession has left its marks particularly on the income growth and position in the labour market of those born in the 1980s. The labour market participation rate refers to the proportion of the population that is of working age which are at the disposal of the labour market, either working or at least as unemployed jobseekers. According to the calculations of the Bank of Finland the participation rate for those born between 1980 and 1985 was almost 4 per cent lower in 2015 than what the long-term average has been for groups of the same age. Giving up job-hunting may be explained by the weaker job prospects of this age group. Those who were born in the 1980s, and particularly towards the end of the decade, have seen a much weaker employment growth than it was for those born e.g. in the 1970s when they were the same age.
The weakened employment situation can also be seen in the income growth of Generation Y. The increase in disposable income for those born around the mid-1980s in relation to the general income growth has been much slower than it was for previous generations. In this aspect, the situation is worse than it was at the end of the 1990s. The income of Generation X, who suffered from the depression years, improved quickly when the economic growth took off, and Generation X got to enjoy the bloom of Nokia-Finland. This time the weak economic situation has been going on for longer, and the long-term economic outlook is worse.
The development of Generation Y’s employment situation is dependent not only on the demand for work, but also the supply. Can Generation Y offer the right kind of skills in the right place at the right time? Investments into education are offered as a general cure to prevent marginalisation among young people, and with good reason. Even though the increase in academic unemployment is discussed a lot, higher education in particular is still a profitable investment. The income that those with an academic education receive during their lifespan is still higher on average than it is for those who are less educated. Those with a university degree are also less likely to end up unemployed. At the other extreme you can find those who have only completed comprehensive school, as their income growth has slowed down clearly compared to those with an intermediate-level degree in recent years.
Despite all the benefits of education, there are still signs that the belief in the power of education is diminishing. The number of people taking the matriculation examination has fallen slightly since the beginning of the millennium, and the popularity of upper secondary school has reduced particularly among boys. When educational establishments compete for students, even the best of career prospects can no longer guarantee the popularity of a training programme. For example, the number of applicants for engineering programmes has fallen by one fifth in the past four years. Both the fact that more young people are withdrawing from the labour market and the appreciation of education is on the decline among young people can be a sign that the younger generations are placing a higher value than before on free time and lower value on work and consumption. The Do What You Love trend may have become more popular among young people, which states that it is more important to pursue your dreams than a permanent job.
The choices between work and free time may also have been affected by the development of technology. When the world of social media and computer games is available almost for free, getting by on a small income has become a much more bearable alternative to work or studies. Professor Lawrence Summers recently estimated that if the current development continues, by 2050 one in three men of working age in the US is not at work. According to Summers, one possible partial explanation for withdrawing from the labour market is precisely the increased appreciation of free time compared to work, as mentioned above.
Maybe young people should be protected, not just from robots and globalisation, but also from their own choices. The choices we make regarding work and free time when we are young will have long-term effects on our future. These choices can be influenced through incentives, so work and studies must remain profitable in the future.
Petri Mäki-Fränti, senior economist, Bank of Finland
Sources:
Kinnunen, H. – Mäki-Fränti, P. (2016), Pitkittynyt taantuma heikentää nuorten sukupolvien asemaa Suomessa. Euro&Talous 11.3.2016. http://www.eurojatalous.fi/fi/2016/artikkelit/pitkittynyt-taantuma-heikentaa-nuorten-sukupolvien-asemaa-suomessa/
https://www.ft.com/content/eb0c4aa4-80b5-11e6-8e50-8ec15fb462f4
