“Some day you will be better off financially than we are”: this is a promise parents have been able to make to their children over the past decades. Now, however, studies show that more and more people are actually earning less than their parents, which poses a threat to social cohesion.
In the aftermath of the Second World War, average incomes moved for decades in practically one direction only: up. Thanks to economic growth and gains in productivity, the western world saw prosperity unknown throughout history.
That Golden Age seems now to have drawn to a close. Current studies from various countries suggest that younger generations today have less chance of making higher salaries than their parents did.
Researchers at Stanford University in the US studied incomes of the generations born between 1940 and 19841 and discovered that the proportion of people earning more money than their parents has caved in: while over 90 percent of those born in 1940 earned more than the generation above them, of those born in 1984, who are 33 years old today, only 50 percent meet this criterion.
“It’s basically a coin flip as to whether you’ll do better than your parents”, says economics professor Raj Chetty of the Stanford Institute for Economic Policy Research, one of the authors of the major study. Chetty’s finding: “The American dream is fading.”
And what the Stanford economists have identified as a trend in the US is also true of Europe. In Germany, for instance, the Institute for Economic Research has compared lifelong income for the 1935 to 1972 cohorts2, and concludes: “Real income is falling in the lower salary bracket, remaining stable in the middle and dropping slightly for the youngest generations.”
The same is suggested by a report issued by the McKinsey Global Institute3, which tracked development in 25 industrialised countries. According to the study, the 21st century began with a lost generation, in terms of income: in the countries studied, household income stagnated or sank between 2005 and 2014. Two out of three households, the report shows, were obliged to make do with zero growth, or with a shrinking budget.
Researchers view this development with concern, since the economic and social consequences are “potentially corrosive”, the study suggests. “We can expect lower economic growth, since people have less disposable income”, says Richard Dobbs, one of the authors, who fears “social tensions”.
The reason for this is the significant number of people whose income has not risen, who are as a result “deeply disappointed” and who have lost their confidence in the global economic system. “Nearly one-third of those who are not advancing said they think their children will also advance more slowly in the future”, says Dobbs, “and they expressed negative opinions about free trade, technology and immigration”, things that have driven economic growth in the past.
Things seem more positive in Switzerland at the moment, a country that comes in for general scrutiny in the studies mentioned. According to the Swiss Federal Statistical Office, although Swiss real wages were virtually stagnant between 1992 and 2006, they have been climbing again gently since, with the exception of 2008, the crisis year.