Shattered Dream? Wealth Inequality among Baby Boomers and Millennials in the USA
by Anette Fasang, Rob Gruijters and Zachary Van Winkle
How did wealth accumulation change between the baby boomer and millennial generations in the United States? Did millennials really experience more unstable and precarious life courses compared to the baby boomers, as is frequently assumed? And can millennials accumulate less wealth compared to the older baby boomer generation, because they experience more complex and interrupted work and family lives? To answer these questions, we analysed detailed data on wealth accumulation, and work and family biographies in young adulthood for about 6,000 US-Americans.
Our starting point was the widespread assumption that "millennials", born in the early 1980s, experienced increasingly unstable and precarious life courses in young adulthood compared to the "baby boomers", cohorts born in the late 1950s and early 1960s. An obvious consequence would be that millenials are unable to build up as much wealth as the baby boomers could. In the public eye, millennials are thought to be the first generation in the US to no longer fare better than their parents, but financially worse - a development that would blatantly call the American dream of unlimited opportunity and continuous upward mobility into question.
It is argued that millenials are increasingly engaged in precarious working conditions in the growing services sector. They represent the „generation i“, which even with a good education shifts from one temporary low-paid job to the next, sometimes leading, but often not, into stable, fulfilling and adequately paid work. Their family histories also seem more diverse. On the one hand, starting a family is often delayed for a long time. Young adults who are unable to gain a foothold in the job market often return to their parents' homes after completing their studies or training are the so-called "boomerang kids". On the other hand, separations and patchwork families have increased in young adulthood – separation and divorce are known to quickly decimate considerable assets.
The findings of our analyses based on the 1979 and 1997 National Longitudinal Surveys of Youth data are initially surprising: on average, millennials have almost as much assets at the age of 35 as the baby boomers when all sources of capital minus existing debts of a households are added up: about 100,000 US dollars adjusted for inflation. This can be seen in Figure 1, which shows how wealth is distributed in the US. So, according to our data, we did not find that millennials at the age of 35 accumulate have on average less wealth than the baby boomers. However, most respondents are well below this average, because wealth is extremely unevenly distributed. The recent increase in wealth inequality, as evidenced by French economist Thomas Piketty and co-authors, is also very clear in comparison between the two generations. The wealthiest millennials have more wealth than the richest baby boomers, while the poorest millennials have much higher debts than the poorest baby boomers.
Figure 1: Wealth Distribution by Decile and Birth Cohort
Millenials therefore have on average not less, but even a little more wealth than the baby boomers. What we can observe among the younger generation is a polarisation between people who accumulate a great deal of wealth and those who do not build wealth or are more deeply indebted.
Is the higher wealth inequality among millennials the consequence of a polarisation of life courses that either favour the accumulation of wealth or make it more difficult? To answer this question, we analysed the life histories of NLSY respondents between the ages of 20 and 35 on the basis of monthly information on their professional and family situation. The results largely confirm the suspected changes in the lives of the baby boomers and millennials. We created a typology of employment and family history and compared the frequency of the types among the baby boomers and millennials. Types of employment are characterised by the type of employment in which respondents spent most of their time until age 35. At the same time, however, they also take into account the dynamics of typical changes between education, gainful employment and non-employment work.
The distribution of family and employment life courses across the two generations are displayed in Figures 2. For example, we find a group of young adults who finish their educational careers at the age of 25 and immediately enter high-paying safe occupations, where they remain uninterrupted until the age of 35 and beyond. They are beginning to build their own wealth by the middle of the 20's - especially if their studies were funded by their parents rather than their own credit. This type of secure, early paid employment is far more prevalent among baby boomers at 18 percent than among millennials, of which only 9 percent belong to this group. On the other hand, there is another typical employment pattern of frequently interrupted employment phases in low-paid simple service jobs that offer few opportunities to save. This experience marks the young adulthood of only 8 percent of baby boomers, but 17 percent of millennials.
Figure 2: Compositional Change in Employment and Family Trajectories Across Cohorts
Therefore, the relative frequency of baby boomers and millennials in typical life courses differs. Overall, millennials increasingly work in simple service jobs and spend long periods in postgraduate education. By contrast, the classic high-educated, well-paid and temporary professions, such as judges or government officials, as well as higher-skilled workers, who are also generally relatively well secured, are less common among the millenials. There are also significant differences in asset accumulation according to the respective types of employment, as can be seen in Figure 3.
Figure 3: Wealth Accumulation by Employment and Family Trajectory
Family histories also differ across the two generations. Delayed family formation and a late or reversed exit from the home are much more common among millennials. In addition, millennials are more likely to remain unmarried until the age of 35 and more liekly to enter parenthood outside of marriage. These family histories lead to much lower wealth at the age of 35 years compared to married parents.
Is it really the changes in the patterns of employment and family histories that are responsible for the increase in wealth inequality? With the help of quantile regression, we estimated the impact of employment and family life course types on wealth in the lower, middle and high wealth sectors. The result is surprisingly clear: the differences in life histories between the baby boomers and millennials are not a sufficient explanation for the increased wealth inequality.
If the increased wealth inequality among the millennials can not be explained by changes in life courses, then what? One potentially important difference could be the inheritance and support of parents during their lifetime. Millennial parents, who are also substantial members of the baby boomer generation, are likely have more wealth than their own parents, who grew up during the Great Depression between the two world wars. It could be that they used their wealth generously, at least to maintain the status or at best the social advancement of their children. However, this has not yet been sufficiently empirically investigated. Changes in the real estate market may also play a role, especially the rapidly rising prices in large cities. These could inflate the wealth of the wealthy millennials in particular, as well as contribute to the higher indebtedness of the worse off millennials.
This is the English translation of the authors‘ contribution to WZB Mitteilungen based on preliminary results of work presented at the DIAL Mid-Term Conference in Turku, Finland.