Should young workers be angry about the economy?

Young workers, defined as those from the Gen Z generation – born between 1997 and 2012 – are reported to have numerous complaints about the economy, so much so that polls show them being among the strongest backers of socialism. Their concerns span many topics, including earnings, treatment by their employers, costs, and their inability to achieve the living standards of previous generations, particularly the standards of their predecessor generation, the Millennials, born from 1981-1996.

Today’s column takes a look at the economic issues of young workers, evaluates the issues, and makes some recommendations.  Of course, as always, at the conclusion I’ll let you decide how to rate the economic situation of today’s young workers.

The first stop is earnings.  The oldest Gen-Z worker today is 29, so comparisons across generations should be based on similar ages.  Also important is accounting for inflation.  Price inflation lowers the purchasing power of each dollar earned.  Hence, dollar amounts of earnings must first be adjusted for price increases so accurate comparisons can be made of how much the dollars of a worker’s salary can purchase in different years.  

The importance of accounting for inflation can readily be seen in the comparison between same-age Gen-Z workers and the previous generation of Millennial workers.  If no inflation adjustment is made, the comparison shows Gen-Z workers are paid more.  But, if the comparison is made after adjusting for inflation between the two time periods, the result shows Millennials were paid more. Hence, Gen-Z workers have a legitimate concern about the purchasing power of their earnings being lower than the earnings of the preceding generation.

Another concern of today’s young workers is that their employers don’t compensate them for higher productivity.  Productivity measures how much output is produced per worker.  Traditionally, companies compensated workers for higher productivity.  But this hasn’t happened for Gen-Z workers.  Indeed, the situation has been much the same for Millennial workers.  However, one logical explanation is that much of modern productivity improvements has been caused by technology, not workers.

Perhaps the biggest complaint of Gen-Z workers is their inability to afford some of the traditional purchases of self-supporting adults.  The best example is homeownership.  Many Gen-Z workers complain not being able to purchase a home means they can’t participate in this traditional symbol of adult accomplishment. Without owning a home, they also forego the wealth accumulation over time that usually comes with owning a home.  Many Gen-Z households add that not being a homeowner reduces their desire to have children.  Indeed, the birth rate of Gen-Z couples has been declining.

Home affordability depends on two major factors, the price of the home, and the interest rate on a mortgage, which most first-time buyers need to use for the purchase. There’s no question home prices have risen this decade.  Price per square foot is up 50% since 2020, although there’s been a slight drop in the last year.  The 30-year fixed mortgage rate is significantly higher today than at any time since 2010. An index of home affordability that combines both costs and compares them to median household income has fallen this year.

Some criticism suggests part of the affordability issue faced by Gen-Z is based on their spending habits.  There is evidence that relative to their income, Gen-Z spends more on restaurants and home entertainment, spending that can be considered non-essential.  Restaurant meals can be three to four times more expensive than preparing the same meal at home.

Perhaps ironically, a recent study showed Gen-Z is saving more as a percentage of their paychecks than any other generation.   This behavior points to a potential answer to their problem of purchasing big-ticket items, like a home.  The problem may not be that the generation spends too much, but instead that the issue is their lack of sufficient income.

In this economist’s mind, these results point to a solution for young workers’ frustration with the economy.  Gen-Z has to earn more, either through higher paying jobs or adding second jobs. Alternatively, if they’re willing to buy a home later, Gen-Z should continue to save, and indeed, save even more by eating at home and cutting back on other non-essential spending.  I was 30 before I bought my first “starter home”, about the same age as today’s oldest Gen-Z er.

Economics is a science that focuses on trade-offs.  Every choice made leaves another choice unmet, for the simple reason that resources are limited. Can young workers make some changes that will increase the affordability of what they desire?  You decide.

Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.  His new book, North Carolina in the Anxious Age, will be published by The UNC Press in October.