What happens to a dream deferred? A discussion with Christine Lagarde, Managing Director of the International Monetary Fund, explored how the discrepancy in wages and employment between the youth and the rest of the workforce is deferring millennial dreams and placing a large sector of the population at extreme risk for the next financial shock. Lagarde offered possible solutions based in fiscal spending and tax policy that governments should take to protect the youth population. She argued that government should act now, while the global economy is in a period of stable growth, to push through difficult policies before the opportunity is lost and governments face a serious crisis without ready solutions. Due to income disparity and employment inequality the economic generation gap is widening. Although the Gini coefficient has remained relatively stable across the EU since the Financial Crisis of 2007, the economic gap between youth and the rest of the labor force has widened alarmingly. Young workers’ income and employment opportunities are both far below the economic averages. Young workers’ wages are far below the economic average. Because youth in the labor force lacked the buffer of years of experience and education they were the first to lose their jobs during the Financial Crisis in 2007. Wages for young workers have only recently recovered; however, even now one in four young workers are below the relative poverty line or making below 60% of the median income. Moreover, today’s youth have the largest proportion of debt to assets, leaving them vulnerable to the next financial shock. High unemployment rates among youth have contributed to the economic generation gap. During the Financial Crisis youth unemployment skyrocketed to nearly 25%. Now, young workers face rampant underemployment and the gig economy, an economy in which organization contract independent workers for temporary, short-term “gigs”. Without long-term full-time employment youth continue to fall behind older workers with steady employment. Unlike the youth, older workers’ wages and employment were buffered during the Financial Crisis by experience and better-protected pensions. Since the Financial Crisis wages for older workers, protected from the worst of the recession, have more than doubled. Moreover, older workers universally have a much smaller unemployment rate than the youth. This is, in part, because existing social security nets are geared toward older workers instead of youth.
“Many young people will be vulnerable to the next financial shocks and are putting off investing in their future. In short, the dream deferred we were talking about? They are putting them on hold.” -Christine LagardeGovernments can use fiscal spending and tax policy to close the economic generation gap. Governmental investment in education and skills training for youth may give young employees necessary tools to catch up to their older coworkers. At the same time, redistributing taxes across generations to lighten the burden on young workers will lighten the burden of at risk sectors of the labor force. Finally, designing social security programs that specifically protect young workers is imperative to prevent the economic generation gap from widening in the next recession. Increased governmental spending on educational programs and vocational skills training would allow young workers to match more experienced competitors in the labor force. Germany, for example, has in place apprenticeship programs and flexible workplace laws that have allowed German youth to get more training earlier, resulting in the lowest youth unemployment rate in the EU. Redistributing the tax burden across generations could provide funds for needed youth programs and lighten the burden on struggling youth workers. Halting cuts to wealth and inheritance taxes, traditionally paid more heavily by older members of the workforce, could create extra funds to implement educational and vocational training. France, for example, increased household income tax to finance a cut to labor tax, giving younger, lower income workers a much-needed tax break. Governments should fix the roof while the sun is shining. The global economy is experiencing stable growth. Governments should take advantage of the growth to address hard issues and implement necessary policies to protect vulnerable citizens before the next recession becomes a crisis. In today’s moment of stable economic global growth and recovery there is an opportunity to fix a coming major crisis that might not exist later. On the other hand, if nothing is done a large portion of the labor force may never catch up to the older generation of workers, especially if they are hit with another financial shock. Also, if governments push off these policies until the next recession hits, a large portion of the workforce will be hit with a crisis without a quick solution. Politicians must act quickly to implement tough policies. Older voters traditionally turn out in the largest numbers to the polls; however, the policies needed to prevent a new crisis may anger older members of the constituency. To avoid losing the political capital needed to push through reform, politicians must move early in their term to address the economic generation gap. “This moment of global growth and European recovery we have the opportunity to do the difficult things which might otherwise go undone. In Europe one of the ways of fixing the roof is by designing the policies that will help the next generation, help them reach their dream. We can help.” -Christine Lagarde
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.