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US millennials were grappling with the inequality of a K-shaped economy long before Covid-19

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In a speech on Dec. 1, president-elect Biden spoke about the need to “address the structural inequities in our economy that this pandemic has laid bare” and referred to the “K-shaped” economic recovery, where the letter’s two diverging strokes depict two different economic outcomes facing Americans. The haves and the have-nots.

While the recovery from the pandemic may be the first time the population at large will experience a bifurcated economy, data and research show that some millennials have been living in a K-shaped economy their entire professional lives. Some millennials have been able to graduate from college, build their careers, purchase homes, and save for retirement. However, many are struggling due to rising tuition fees, higher costs of living, stagnant wages, and mass layoffs in industries like hospitality.

“People born after 1980 have just experienced lower rates of economic growth in their early adult years than anybody had seen in the 20th century,” says labor economist Gray Kimbrough, an adjunct professor at American University in Washington.

K-shaped employment

Millions of millennials in the US (who are now 24 to 39 years old) graduated from high school and college into a recession. This meant difficulty finding jobs, sometimes for years, even after getting graduate degrees.

K-Shaped employment within the generation

In 2010, 10.4% of millennial college graduates in the US were officially unemployed. That’s already a large number, but for those without higher education credentials, the situation was over three times worse. High school graduates were unemployed at a rate of 32.7% in 2010, according to research by the Economic Policy Institute, a Washington-based think tank.

The gap widened just as millennials were entering the workforce.

The unemployment rate for college grads is typically lower than that of folks with only a high school diploma. From 1995 to 2005, the gap for workers 25 years and older fluctuated between 1.5 percentage points and 2.7 points. This gap widened just as millennials were entering the workforce. In October 2009, the spread was 6.3 points and didn’t fall below 2.7 until June 2014.

K-Shaped employment compared to other generations

Every generation of American worker has experienced elevated levels of unemployment during economic downturns. The divergence of the national unemployment rate and the rate for 20-to-24-year-olds was highest when millennials were that age. In April 2010 the spread was 7.3 points, the highest ever.

K-shaped earnings

American millennials with college degrees and those without often earn very different incomes.

For millennials with a bachelor’s degree and a full-time job, median annual earnings were $56,000 in 2018, according to the Pew Research Center. For millennials without college degrees, median annual earnings were $36,000. Baby boomers without college degrees made $38,900 in 1982 when they were the same age as millennials.

A working paper by Census Bureau economist Kevin Rinz found that while millennial employment recovered from the Great Recession within 10 years, their earnings did not. One reason is that many college graduates couldn’t get the jobs they had studied and trained for. They had to settle for lower-wage, lower-skill positions or earn income in areas outside their field of interest. For workers who could only get hired into the lowest-paying jobs, the federal minimum wage hasn’t risen since 2009.

Millennials who experienced periods of unemployment after the Great Recession also took a big hit to their future income. Rinz estimated unemployment during the recession reduced the annual income of millennials by an average of $3,000 nearly a decade later. The cumulative effect of that loss from 2008 to 2017 was estimated to exceed $25,000, or approximately 13% of actual earnings over that period.

Research shows this catch-up process widens the gap between the least and most successful millennials.

If a millennial worker did finally get hired into their chosen field after the economy picked up, they still had to learn the professional skills they would have otherwise started developing right after graduation. Economic research shows this catch-up process causes lower earnings, provides fewer opportunities for advancement, and widens the gap between the least and most successful millennials.

K-shaped debt and expenses

Student debt looks K-shaped when considering different states, levels of financial aid, types of borrowing and occupations. In Utah, the average amount of debt for a Class of 2017 graduate is $18,850 compared to $38,500 in Connecticut, according to a 2018 report from the Institute for College Access and Success, a non-partisan higher education non-profit.

There’s also a big difference between millennials who received full scholarships or had tuition paid for by their parents versus the students who had to borrow a significant amount of their tuition and living expenses using loans.

Many millennials’ debt burdens are the result of rising college tuition. Tuition at four-year schools is now 250% higher on an inflation adjusted basis, than what it was when the oldest baby boomers entered college in 1964, according to a report by the AARP Public Policy Institute.

On top of that, millennials have higher expenses compared to Baby Boomers. The US Census Bureau calculated that baby boomers paid an average gross rent of $350 in 1960, adjusted for inflation to the year 2000. By 2014, millennials were paying a national average of $920, with many large cities having a gross average rent of $1,145 or more.

K-shaped savings and retirement

All of these factors mean big differences in how much millennials have been able to save and put away for retirement compared to Baby Boomers.

About one-in-four millennials who are saving for retirement, an emergency fund, or other future goals have at least $100,000 or more, according to a report from Bank of America published in January, prior to the pandemic. The same report found 27% had nothing saved at all.

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