Real wages growth chart sums up why Millennials are so angry

Finally there is proof for Millennials and Gen Z that the biggest misconception Boomers have about them simply isn’t true.

ANALYSIS

In the battle between Boomers, Gen Z, Millennials and Gen X, the debate is often reduced to sound bites and oversimplifications, as emotion and frustration that arise from attempting to compare experiences comes to the surface.

Today, we are going to attempt to take as much emotion and subjectivity out of the equation as possible and instead rely on hard data from the federal government, the Reserve Bank and the Productivity Commission.

This will provide a more accurate snapshot of how different Aussie age demographics have fared since the turn of the new millennium.

In order to more fairly assess things, we’ll be looking at both wages growth (hourly earnings) and household spending across different demographics.

Wages growth

In order to get the most accurate possible picture, the wage metric we’ll be focusing on today will be inflation adjusted hourly earnings as measured by the Productivity Commission, so issues stemming from more or less hours being worked can be avoided.

In the seven years between 2001 and 2008, the growth in real wages continued its strong run of results across most age demographics. While the 20 to 24 age demographics underperformed compared with its peers, those aged 25 to 64 experienced relatively similar outcomes.

To put this into perspective with our intergenerational battle, the eldest member of Gen Y, or Millennials, was 28 in 2008, with the youngest aged 14.

This is where the wages story starts to diverge in a big way along the lines of age demographics.

In the decade between 2008 and 2018, cumulative real hourly wages growth tells a very different story for the different demographics. Wages for the 20 to 24 and 25 to 34 age demographics saw only very minimal growth in inflation adjusted terms or small falls.

The 55-64 age demographic fared much better seeing their inflation adjusted wages rise by a cumulative 9.5 per cent. The 35 to 54 age demographic fared best, with their real wages growing by 14.5 per cent.

Despite the perception that Gen Y and Gen Z can be demanding of their employers, it turns out younger generation have been provided real wage growth outcomes that were far worse than those provided to their peers from older age demographics.

To provide a bit of historic context to the performance of real wages for the 20 to 35 generation during this period, workers in Japan during that nation’s infamous ‘Lost decade’ (1991 to 2001), a period of severe economic stagnation, saw their inflation adjusted wages rise by more than younger Australians during this period.

Since inflation took off in 2021, things have gotten much worse for all Australia’s working age demographics. With the longest broadbased fall in real wages since at least the 1980s underway, things have deteriorated significantly across the board.

In inflation adjusted terms, workers in the 20-24 age demographic have the same purchasing power as they did in 2002. For those aged 25-34, they have 2005 levels of purchasing power. For the 35-54 age demographic, 2014 levels of purchasing power are on offer. For those aged 55 to 64, buying power is the same as it was in 2013.

Purchasing power is the amount of goods and services that an individual can buy with a set amount of money, in this instance with their monthly pay packet. This can vary significantly over time based on inflation and wages growth, but historically has generally trended upward across the vast majority of Australian history.

With Treasury and the RBA both forecasting inflation to outstrip wages growth for at least another year, the spending power of Aussie households is likely to fall significantly further before things show signs of improving.

The avocado on toast debate

When Gen Y and Gen Z are assessed based on their perceived spending priorities, they are often seen as frivolous and too focused on spending their pay packets on fast fashion or the latest fashion.

But this perception doesn’t stack up in reality. In 2018, households with a reference person aged 25-34 consumed less goods and services than a household in this age demographic did in 2007. For households with a reference person aged 15-24, they consumed a very similar amount of goods and services in 2018 as they did in 2009.

Meanwhile, the 65+, 55 to 64 and 45 to 54 age demographics experienced the strongest increase in household spending in that order.

Despite the 35 to 44 age demographic experiencing the largest wages growth of any of the assessed demographics, its spending decreased by significantly less than older demographics. This may be down to the large mortgages and other debts that are typically held by this demographic.

Putting it all together

Despite the relatively widespread perception that younger Australians are spending frivolously, they are actually spending the same or less in inflation adjusted terms than those of the same age were back when Kevin Rudd was the Prime Minister (the first time).

Over the same time younger generations have been provided one of the worst real wages growth outcomes in Australian history over a decade, until inflation took off and made it far worse than that for the vast majority of Australians.

Instead of Australia’s economy operating under one of the more normal growth models which can be somewhat crudely broken down to:

Real wages grow > Household spends more > Economy grows (ideally rinse and repeat).

The economy is now increasingly powered by the spending growth of older generations and consumption funded by home equity withdrawals.

Relative to the normal functioning of the economy where growth in a household’s spending power was the reward for all their hard work, Australia’s economy is a shadow of its former self that has sent the spending power of younger demographics back to where it was almost 20 years ago.

Ultimately when you look at the data it becomes clear that not only Gen Y and Gen Z have got every right to be frustrated with the poor hand they’ve been dealt, but that they have actually been remarkably quiet for groups who have seen so many positive things about our economy simply evaporate for them.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator