Why is inequality worse for young people? | CNBC Explains


They’ve been called a
generation of dreams deferred. One out of every seven people in Europe between
the ages of 15 and 24 who wants a job can’t find one. And many who do have found jobs are stuck
in part-time or temporary positions. And it’s not just a phenomenon
happening here in Europe. Young people all around the world are feeling
the pain from income inequality. There are all kinds of inequality in the
world like gender, wealth or race. We’re going to look specifically at income inequality
and the effect that it’s having on younger generations. Simply put, income inequality refers to the
gap in income which is the money you earn from your job or investments
between the rich and the poor. It’s not exactly a pretty
picture right now. Since 1980, the top 1% has taken a
bigger slice of the world’s income, while the bottom 50%’s
share has stagnated. That picture is even more dramatic in
the world’s biggest economy, the U.S. And in many ways, it’s even
worse for young people. Let’s come back to Europe
to help understand why. After the financial crisis in 2007, incomes declined
across the board as people lost their jobs. Research from the International Monetary Fund found
that as the European economy started to recover, the incomes of people aged 65 or older increased by
10%, in part because their pensions were protected. Meanwhile, the incomes of young
people recovered but didn’t ever grow. The research said that because young people
didn’t have as much professional experience, they were the first to be let go or
they were less likely to find work. Those who did find jobs often
accepted lower wages than before. Others took part-time work, which don’t
provide the same benefits or safety nets. That helps explain why the youth unemployment rate
across the 28 countries in the EU is so high at 14%. That’s more than double the EU’s overall
unemployment rate across all ages. This younger generation also has more debt
relative to their income than other age group. This leaves them much more exposed if the
economy unexpectedly gets worse again and could get them into deeper
trouble with their finances. One glaring example
is student debt. As demand for higher education in the
U.S. has increased over the years, so has the cost of
college and student debt. National student loan
debt sits at $1.5 trillion, making it the second largest type of
consumer debt after mortgages. Student debt is increasingly becoming
a concern in other countries too, like Canada, the United Kingdom, New
Zealand, South Korea and Japan. You can see how inequality is playing
out by looking at poverty rates. Before the financial crisis, the risk of slipping into
poverty was more evenly spread among age groups. Now, one out of every four young
people in Europe is at risk of poverty. The problem is that many young people have gotten
stuck in these low-wage, low-skill or part-time jobs. They miss out on the opportunities to learn new
skills required in jobs that make more money. At the same time, the
cost of living is going up. Just look at this graph, which
shows house prices increasing far faster than income
over the past two decades. This is one reason fewer millennials are part of the
middle class than the generations before them. Plus, as the global population
ages, public debt is going up as governments finance social
assistance programs for the elderly. The burden of paying off that debt,
well, it’ll likely fall on young people. All these costs and more have made young people
skeptical of the government and institutions and helped fuel populist
movements around the world. So what can be done? One popular idea is better
education and more training. In fact, half of young people surveyed here across
Europe say the main priority of schools should be to prepare
them for employment. Take Germany’s apprenticeship model. Students split their time between training at companies
and taking classes at public vocational schools. So they get work experience and the
skills they need at the same time. Data shows this type of training model works
to reduce unemployment and inequality. Another idea is taxation. Some policymakers and politicians
have floated wealth taxes that would target companies with a big
income gap between their workers. Others want unions to
fight for higher wages. More affordable housing could also help ensure
young people aren’t priced out of good jobs in cities. While many of these
proposals are wildly popular, they’ve proven to be a tough
sell in the political arena. But the economic reality is that addressing
inequality among younger people benefits all ages. This is particularly the case in low-income
and emerging market countries, where the IMF found more young people
working means more equality for everyone. Hey everyone, it’s Elizabeth here.
Thanks so much for watching. What do you think the best fix is for income inequality?
Let us know in the comments section. And leave us any other ideas
there too. See you later!

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