Millennials and the economy
Updated 5:09 pm, Thursday, December 26, 2013
With a population of 77 million people, Millennials will matter to the U.S. economy, but they don't yet. Nearly the same size as the Baby Boomer generation with unparalleled levels of educational attainment, they are living in their parents' basements, getting married later in life and taking longer to accumulate wealth relative to parents. But Millennials will be a critical part of pulling the U.S. economy out of its current malaise. They just have some catching up to do first and revamped public policy can accelerate the pace.
Net worth would be a good place to start. The median net worth of a householder under the age of 35 was slightly above $27,000 in 1991. Two decades later, the median stood at $6,676 - a 75 percent decline. Much of this is due to declines in housing equity, which is being recovered as home prices rise. Young people have less equity, and when home prices fall, their net worth is acutely affected.
Younger workers suffer more during difficult economic times - younger Millennials face a 16.3 percent unemployment rate. Younger workers entering the job market are matching their skills to careers. High unemployment is to be expected. As the Boomers moved into and through their prime working years, they enjoyed the 25 years preceding the Great Recession known as "The Great Moderation," a period marked by shorter and gentler business cycles, a more stable labor market and declining unemployment rates. As the Millennial generation ages, unemployment rates should fall.
In the long run, Millennials also have their educational attainment working in their favor. For those with a bachelor's degree and at least 25 years old, the unemployment rate is just 3.9 percent. While the U.S. economy is improving, it takes some time for the improvements to work their way down the skills and experience ladder. And so we arrive at a situation where 32 percent of those ages 18 to 34 - some 22 million young people - live at home. For those with student debt, the issue becomes paying off one form of debt to become eligible for another and move out. From the early 2000s until 2007, people were forming households at an average rate of 1.5 million per year. But from 2008 to 2010, the rate dropped to 500,000. And even when they move out, they are not purchasing homes. Instead, they are moving into apartments.
The solution? U.S. policymakers should emulate Texas. Ranked 11th by the Tax Foundation, the state's low tax burden is attractive for people with student loans as the debt load is more easily paid down. In the past year, Texas has created high-paying jobs - 80,000 professional and business services jobs - and a total of more than 274,000. As these stable, well-paying employment opportunities continue to be created, more Texas Millennial households have the opportunity to take shape.
The Internet and creative methods of delivering education are making college more affordable for future generations, but it is likely too late to reduce the burden for the Millennials. Providing a well-paying, stable job with a low tax burden and cost of living is about all that can be done to stabilize the economic outlook for this group. And Texas is doing it.
The evidence? Texas was one of only a handful of states that issued more permits for apartments - the preferred housing of Millennials - in October than single-family homes. This amounts to about 7,600 multi-family permits or roughly 22 percent of the multi-family permits issued in the U.S. This is how to attract people from other states when interstate migration is on the decline: with job prospects, relatively cheap cost of living and economic stability.
The Millennials may not matter now, but they will have a dramatic effect on the U.S. economy in the not-so-distant future. As the U.S. economy improves, the Millennials will gain confidence and emerge from the basement. The student debt will be repaid and homes will be bought.
This will not happen quickly, however. Student loans must be paid, and apartments are a logical first step before a home. But the Millennials will emerge, and the U.S. will see a flood, not a wave, of people ready to make the economy theirs.
Rines is an economist with Chilton Capital Management in Houston.