Update 470 — Generating Inequities:
Economic Impact of COVID on Millennials
For the 75 million Americans born between 1981 and 1996 — the millennial generation — the economic scars caused by COVID will last longer and do more material harm than for any other cohort. From distant or delayed classroom learning at tuition rates making education less of a value to a job market crippled by lack of demand, millennials now face badly and uniquely constrained economic fortunes.
Some problems, like the $1 trillion student debt overhang, are pre-existing conditions aggravated by COVID. Others, like the looming retirement crisis, are not yet felt but made worse and more certain by COVID. With students struggling this September to return to classrooms and unlucky recent graduates seeking first jobs in a forbidding market, we look at what the economic challenges and legacy of COVID mean for millennials.
Good weekends, all…
Millennials, many of whom entered the workforce during the Great Recession or during its recovery, are experiencing their second once-in-a-lifetime economic crisis, all of them under the age of 40. Already facing greater economic fragility, millennials now bear much of the brunt of the recession and will incur permanent financial costs.
Below, we analyze key issues for millennials, the impact of COVID, and what issues will remain after the pandemic is gone.
A problem even before the recession, more than a quarter of millennials have outstanding student loan debt. The average millennial borrower in 2018 left college with almost $30,000 in debt, and millennials collectively hold more than $500 billion in outstanding student loan debt.
The astronomical level of student loan debt coincides with the average sticker price for public college tuition more than doubling from $8,143 in 1985 to $17,797 in 2017, after adjusting for inflation. College enrollment rose sharply during the Great Recession, as millennials coming of age at the time found their job prospects without a college degree to be negligible. During this time, more students enrolled in graduate school, thereby accumulating more student debt.
Although a major issue for millennials, student loans will not be a pressing concern until the end of the year. The CARES Act suspended principal and interest payments on federally-held student loans through the end of September, and one of Trump’s August actions extended the forbearance period through the end of December.
Job Markets Pre- and Peri-COVID
Pre-COVID, millennials had higher rates of un- and underemployment (4.1 and 18 percent, respectively) than the rest of the population and routinely found themselves stuck in jobs with stagnant wages. Over 4.8 million millennials lost their jobs between February and May, compared to around 3.5 million GenXers and 2.8 million baby boomers. As a result, the millennial unemployment rate peaked at 14.3 percent in April and has recovered slowly.
Source: Bureau of Labor Statistics
Millennials’ entry into the labor force coincided with the rise of the “gig economy,” where short-term arrangements and freelance work reign. Accordingly, millennials make up over 40 percent of gig workers and receive almost three-quarters of their income through contract work.
While the gig model allows employees greater flexibility in moving between employment arrangements, basic worker protections are scarce. Health insurance and paid family and medical leave are critical to household financial security, but are virtually nonexistent in gig arrangements. Until passage of the CARES Act, gig workers were ineligible for unemployment insurance. These workers can collect state-level unemployment benefits through the end of the year, but without a permanent expansion of the CARES reforms, millions of millennials will find their lone source of income cut off.
Generational Wealth & Housing Gaps
Millennials still hadn’t recovered from the Great Recession when the pandemic hit. The Great Recession depressed millennials’ total earnings by about 13 percent for the next decade, compared to 9 percent for Gen Xers and 7 percent for baby boomers. This hinders the generation’s economic power and ability to build wealth. Driven by decreasing rates of homeownership, the average millennial holds about 40 percent less wealth than the average Gen Xer did in 1989.
The intergenerational wealth gap is directly related to the fact that millennials are waiting longer to buy homes. Home ownership is a key source of wealth for Americans, and the slump in homeownership among millennials means that much of their income is absorbed by rent. Housing is getting more expensive; home prices are 39 percent higher than they were 40 years ago and 73 percent higher than they were 60 years ago. Meanwhile, rent prices have also increased faster than the rate of wages. Median rent prices increased 13 percent since 2001 while median renter household income increased only .5 percent over the same period.
The wealth gap is also exacerbated by millennials’ massive amounts of personal debt. In 2019, the average millennial held $27,900 in debt (excluding mortgages) primarily from credit cards. Now, nearly one-third of millennials say the pandemic upended their financial security, compared to a quarter of Gen Xers and a sixth of baby boomers. The CARES Act’s increased unemployment benefits and $1,200 checks were a lifeline for millennials, two-thirds of whom were living paycheck-to-paycheck before the pandemic. Many millennials used these payments to pay down their personal debt.
An Accelerated Retirement Crisis
Social Security insolvency will be a major issue for millennials both before and after they retire. Sixty-eight percent of millennials hold favorable opinions of Social Security, and 80 percent believe the program is more essential now than ever. Moreover, 69 percent of millennials want Congress to increase the program’s benefits.
Social Security has long been a target for Republicans, and now Trump has made it a priority to undermine Social Security’s key revenue stream. In August, Trump signed an executive order delaying employee-side payroll tax obligations until the end of the year. Trump stated that he intends to make this deferral permanent and to make permanent cuts to the payroll tax — perhaps even eliminate it entirely — should he win a second term. Such moves would decimate one of the nation’s most successful anti-poverty programs.
The 2020 Social Security trustees report estimated that, before the pandemic, Social Security would be insolvent by 2035, but the pandemic and subsequent recession have accelerated the insolvency timeline by as much as six years. Trump’s proposals would do even greater damage. Absent any movement of funds, Trump’s proposed elimination of the payroll tax would accelerate insolvency to 2023, after which point Social Security would be permanently unable to pay benefits.
Even before they retire, insolvency would require many millennials to financially support their retired relatives. Millennials will also need to rely on Social Security for a greater portion of their post-retirement, since nearly two-thirds of millennials have no retirement savings. Millennials are also less likely to have a defined benefit pension plan than previous generations, and only a third have employer-sponsored retirement plans, compared to about half of Gen Xers and baby boomers.
Pre-COVID, millennials were already struggling to catch up to older generations in accumulating adequate wealth and retirement resources. Many will be unable to meet traditional obligations of child rearing and elder care. At the same time, the oldest, wealthiest households are doing better than ever.
But all is not lost. While turnout in the 2018 midterms increased across the board, the most pronounced change was among millennials, whose turnout doubled from just four years prior. Per Pew Research Center, 59 percent of millennials identify as a Democrat/lean Democrat compared to only 48 percent of GenXers and boomers. Millennials appear more ready than ever to step into the political arena, and the Democratic party would do well to pay attention.