Are young Australians falling behind or just running a different race?
For much of Australia’s history, we’ve told ourselves a comforting story – each generation would be better off than the last.
It’s the great Aussie promise. Work hard for a few decades and your kids will enjoy better jobs, higher incomes and more security than you did.
But what if that promise no longer holds?
A new report from the e61 Institute throws a spanner in the optimistic intergenerational narrative. It paints a complex picture of today’s young Australians.
They are more educated, more indebted, and more anxious than their parents were at the same age.
For context, the e61 Institute is a non-partisan economic research organisation that combines innovative data with state-of-the-art tools from economics, data science and statistics to address Australia’s most pressing economic questions.
Obviously, their data-heavy approach is close to the heart of your friendly neighbourhood Stats Guy.
The report, “Will Young Australians Be Better Off Than Past Generations?“, was released last month.
Let’s start with the good news in the report. Young Australians are better educated than any previous generation. They’re twice as likely as their parents to have a university degree and far less likely to drop out of high school.
Since education remains the best indicator for your future income, this sounds like great news.
Source: e61 Report
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Now that we are sending more than half of our year 12 students into the university system, a bachelor’s degree doesn’t signal intellectual superiority anymore.
Back in the day, any bachelor’s degree marked you as one of the most educated 10 per cent of the population. Now a university degree suggests you are part of the top 50 per cent (yawn – not very impressive at all), delays your entrance into full-time work and loads you up with debt.
Since 2012, the share of under-35s with a HELP debt has jumped from 20 to 30 per cent and repayments are stretching well into people’s mid-30s. This is, of course, just the time to buy the first home or start a family.
Many jobs that were accessible to high school grads in the past now require a university degree without offering higher pay in return.
This shift seriously disadvantages the young workers of today that have to pay for four years of additional education to get a relatively basic job. University degrees simply aren’t as valuable as they once were.
Incomes tell a mixed story. In raw terms, young people earn slightly more than those born in the 1980s (that’s the millennial generation who are the young parents and middle managers of today) did at the same age. But income growth has slowed dramatically since the global financial crisis, especially for workers under 40.
Many are stuck in low-paid, insecure work and their bargaining power has weakened as older Australians (that’s the baby boomers) stay in the workforce for longer.
Don’t get me wrong, boomers retiring later is great for the economy and softens the impacts of our prolonged skills shortage.
Meanwhile, Australia operates a tax system that favours wealth over work.
Your work, in the form of income, is taxed much more aggressively and progressively than your wealth. More than 50 per cent of all tax the federal government collects comes from taking a cut of your pay cheque.
As the large baby-boomer generation retires, the dependency ratio (working population compared to non-working population) goes down. The federal government’s healthcare costs go up as the population ages and most collect more tax dollars.
Structural tax reform would mean taxing wealth (death tax, land tax, aggressive caps on super, unrealised gains tax) or consumption (higher GST), but would be politically tricky to establish.
It’s easier to allow bracket creep (not indexing tax brackets to inflation) and continue to rely on income tax.
Young people look at the reasonably high figures on their employment contracts and feel they should be better off: “Why don’t I feel much richer now that I entered a new tax bracket?”
A tax regime relying on income tax, hurts younger people and favours older people.
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Sure, some young Australians will eventually inherit wealth, but many won’t. While inheritances are set to quadruple by 2050, many young people won’t benefit from this, and ultimately the wealth gap within the younger generations is set to widen.
Screenshot from e61 report
Young people aren’t necessarily falling behind but they are living their lives differently.
They delay many milestones either by their own choosing or by a lack of opportunities – moving out of the family home, home ownership and having kids all happen later.
More than half of young Australians aged 18-24 still live with their parents. Home ownership rates among the 25-34 cohort have fallen sharply, especially in our major cities. Parenthood is also being postponed.
At the same time, we’re seeing growing divergence within the youth cohort.
Young women are thriving in education and in early-career jobs, especially in the booming care sector.
Based on hourly wages, women in their teens and early 20s working full-time have been out-earning their male counterparts for a decade. For the first time, women aged 25-34 earn more per hour than men. But they’re also reporting higher rates of mental distress and loneliness.
Young men, particularly in regional areas, fall behind women and record higher unemployment, lower education, and rising disengagement from both work and study (see my previous column on the wider social implications of this trend).
Young men appear to react to this trend by favouring very traditional gender roles – a reversal of long-term trends.
Technology plays a big role here. Today’s youth are the first to grow up in age of smartphones, social media, and uninterrupted connectivity.
Technology brought many positives (better medicines, longer life expectancy, easier access to information) but also downsides (poor mental health). Social media usage is strongly linked to rising anxiety and depression, especially among young women. Meanwhile, problem gambling is on the rise among young men.
So, what should we make of all this?
Policymakers need to tread carefully. Some of what looks like decline might just be delay. But assuming young people will eventually “catch up” could be dangerous – especially if current conditions (like housing unaffordability, insecure work or unfair taxation) persist.
Obviously, there is no single youth experience. Gender, geography, family wealth and culture all shape how young Australians move through life.
While I am hoping for a simplification of our policy landscape, I understand one-size-fits-all policies won’t cut it. You always start with a simple outline of a policy and then think of ever more exceptions where one group or another just has to be included or excluded. That’s why around the world each constitution (or similar document) starts with a few guiding principles that must be adhered to.
Australia must have a public conversation if we want to be a country where hard work pays off. We must also decide if we collectively want to preserve the intergenerational promise. If the answer to both questions is yes, we’ll need to update policies accordingly.
Policy change is much harder than just repeating old mantras or myths about the importance of hard work. Major structural tax reform would certainly be needed.
The question is whether any political leader will step up to preserve the promise we once made to future generations.
Simon Kuestenmacher is a co-founder of The Demographics Group. His columns, media commentary and public speaking focus on current socio-demographic trends and how these impact Australia. His podcast, Demographics Decoded, explores the world through the demographic lens. Follow Simon on Twitter (X), Facebook, or LinkedIn.
