Generations of people stood atop the columns of a bar graph

New research finds evidence that there is more solidarity between generations than the “Millennials versus Boomers” narrative would suggest

Media coverage of generational wealth often pits Boomers against Millennials, claiming older generations have benefited at the expense of younger ones. Undoubtedly, economic conditions are not as rosy for young people today; wage stagnation, a shortage of housing and global crises have certainly made things harder. 

But are older generations leaving them with an unfair share of the pain from these circumstances? Or is there more intergenerational solidarity at play than the conventional narrative would suggest? To explore this, we conducted a comprehensive study – potentially the first of its kind – looking at all transfers between generations in the UK. 

Wages and ages

The labour market is one of the key battlegrounds in the debate on intergenerational fairness, which is unsurprising given wages have seen historically low growth in recent years. The UK’s average weekly wage has stagnated since 2007, and today’s younger generations simply have not seen the wage rises their parents and grandparents enjoyed. 

There is no doubt this slow productivity growth is the definitive challenge currently facing the UK. However, our study asks whether the pain of slower growth is shared equally across generations, or whether one generation is bearing the brunt.

if the bequest flow continues, most of the appreciation in Boomers’ asset value is likely to be passed down to younger generations

We found that, once we adjusted for a change in the timing of labour market participation (younger generations are entering the labour market later) and for recessions (such as in 1992 and 2008), the distribution of labour income has remained relatively stable across generations over time.

However, younger generations are now much better educated: higher education rates have risen from below 15 per cent in 1980 to nearly 50 per cent in 2022. It does therefore appear that younger generations have not benefited in terms of higher wages from their higher levels of education, and this becomes more acute given the resulting student debt burden. Practically, this does make things more economically challenging for them, even if the intergenerational inequality at play may be less severe than is commonly portrayed. 

Wealth and bequests

There has been a global wealth boom since the 1990s, including dramatic rises in private property values. Again, the prima facie evidence suggests this has led to intergenerational unfairness: Boomers have enjoyed increases in the value of their homes, while the corresponding rising prices have locked many young people out of property ownership altogether.

However, this doesn’t tell the whole story. Over the past 30 years, we have also seen a significant drop in real interest rates. Our study takes this into account, and we found that, while the value of assets has gone up, the income flow they provide has not changed anywhere near as much. 

Today’s younger generations simply have not seen the wage rises their parents and grandparents enjoyed

This means that, while older people have seen their property become more valuable, they have not necessarily gained more liquid income to support increased consumption. In fact, they are more likely to pass the value from their appreciated assets down in bequests to their children than to liquidate it for their own benefit.

In our study, we estimated the flow of bequests to be around £99 billion per year, plus another £11 billion in private gifts between generations (a conservative estimate). Growing this £110 billion total at a 1.5 per cent rate into the future gives us a total of £4 trillion – roughly the value of housing assets held by older generations. This implies that, if the bequest flow continues, most of the appreciation in Boomers’ asset value is likely to be passed down to younger generations

A different picture

Of course, our findings do not suggest there are no reasons to be concerned for younger generations. Increasingly relying on inherited wealth means we’re likely to see intragenerational inequality increase. But this is not something older generations can control; they do appear to be passing down what they can, consuming only some for themselves, taking at least some of the sting out of unequal circumstances.

When we talk about fairness and “Millennials versus Boomers”, this is the key point. In a society already burdened with conflict, this is one battle that maybe isn’t a battle at all. Circumstances change between generations, but our findings show they support each other through this, passing down wealth to address inequalities that certainly exist, but may not be as attritional as they are sometimes portrayed.

Younger generations have not benefited in terms of higher wages from their higher levels of education

Unfortunately, the public sector is another matter entirely. Public sector net worth (public assets, capital assets, debts and pension liabilities) has dropped off a cliff since the 1980s, coming close to -150 per cent of GDP. This is due to factors including increases in public expenditure following the financial crisis and the pandemic, increased pension expenditure due to people living longer, and steeply rising health expenditure.

The net effect is a public sector generational imbalance that negatively impacts younger generations compared to what their parents experienced. This will require a political solution and will also require generations to work together as much as they do in the private sector to achieve fairness. As our study shows, older generations are good parents – to address public sector inequalities, they may need to become better citizens as well.

Main image: siraanamwong / iStock / Getty Images Plus via Getty Images.

James Sefton

About James Sefton

Chair in Economics - Academic Director for MSc Finance & Accounting, MSc Financial Technology and MSc Investment & Wealth Management
James Sefton is currently a professor of economics at Imperial College Business School.

He was previously Principal Scientist at the hedge fund Winton Capital Management, and Head of Global Quantitative Research at UBS Investment Bank.

His economic research agenda focuses on questions about intergenerational equity, pension policy design and long-run trends in the housing market. As a quantitative finance researcher, he is interested in the design of both quantitative investment strategies and retirement investment products.

You can find the author's full profile, including publications, at their Imperial Profile

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