A recent report in Time shows that millennial incomes are on average 4% worst off than the previous generous. This is part of a larger economic trend of decreasing real inflation adjusted wages. 4% may not feel like much, but it adds up over time. Here are some ways to look at the impact.
If we assume people get 1-2% raises per year, that puts us 2-4 years behind our parents, in a sense, the first few years we are underpaid. But the problem is that we never catch up because in those 2-4 years, the gap is actually bigger because our parents also got pay raises. The effect compounds through to our last year of work when it becomes a much larger amount.
On the other side of the coin, every dollar that we’re underpaid in our early years is an extra dollar that could have been saved for long term growth or to pay off student debt sooner. These investments generally have high rates of interest/returns, so we’re missing out on all that growth and savings.
Our starting wage, or prior income determines our next income and income trajectory. So, if you can somehow start with a higher income, you can work around some of these limits. Sometimes it’s worth it to job search for longer or relocate to a higher income area just to get that first high income which sets the tone for all future pay.
On a somewhat positive note, even though we’re all worst off and the distribution is less equal than prior generations, it’s a relative measure, so in a sense we’re all worst off together, thus the economy adjusts to us all being at the slightly lower cost of living.