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Why Did Young People’s Incomes Decline?

Commission research paper

This research paper was released on 30 July 2020. It analyses trends in young people’s incomes from 2001 to 2018 and drivers behind the decline in their incomes after 2008.

Wage income drove most of this decline. Declines in hours worked and in wage rates both contributed to the decline in young people’s wage income. Similarly, income from government transfers declined and so did income from business and investments. These declines were partly offset by increased support from parents.

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Visual summary

  • Setting the scene

    Young people’s incomes have declined

    Average annual growth in real disposable incomes by age

    This is a bar chart showing annual average income growth by age for 2001 to 2008 and 2008 to 2018. The age groups shown are 15-24, 25-34, 35-44, 45-54, 55-64 and 65+. From 2001 to 2008, all age groups have positive income growth. People aged 55-64 have the greatest growth, followed by people aged 65+, 25-34, 15-24, 35-44, and 45-54.
From 2008 to 2018, 15-24 and 25-34 year olds are the only age groups to experience negative income growth. People aged 15-24 have the greatest decline, then people aged 25-34. People aged 65+ had the greatest growth, followed by people aged 35-44, and 55-64 then people aged 45-54. Growth for all age groups was lower in 2008 to 2018 than in 2001 to 2008.
  • Decomposing income

    Income is comprised of labour income, transfer income and other income – most age groups rely on labour income

    Composition of gross income by source 2018

    This is a 100% stacked bar chart showing the composition of gross income by income source, by age group for 2018. The age groups shown are 15-24, 25-34, 35-64 and 65+. Income for people aged 15-24 is about 80 per cent labour income, 10 per cent transfer income and other income the rest. Income for people aged 25-34 was similar to that of people aged 15 24, but slightly less transfer income and slightly more other income. Income for people aged 35 to 64 was about 75 per cent labour income, 20 per cent other income and transfer income the rest. For people aged 65 and over, labour income was about 20 per cent of income, then other income about 50 per cent and transfer income the rest.
  • The importance of each income source

    Labour income drove the decline in young people’s incomes

    Contribution to growth in real gross income per person, 2008–2018

    This is a stacked bar chart showing the contributions to growth in gross income per person from 2008 to 2018 for each age group. The age groups shown are 15-24, 25-34, 35-64 and 65+. This shows that for people aged 15-24 and 25-34, there was negative labour income, transfer income and other income growth with labour income contributing the most. For people aged 35-64, transfer income growth was negative and labour income and other income were both positive and labour income was the largest contributor. For people aged 65 and over all sources were positive with other income contributing the most, followed by labour income and transfer income.
  • What happened to labour income?

    From 2001 to 2008, wage rates and hours worked grew for all age groups …

    Average annual growth rates in average wage rate and hours worked per person, by age group, 2001–2008

    This figure is a bar chart showing average annual growth rates in the average wage rate and hours worked per person, by age group for 2001 to 2008. The age groups shown are 15-24, 25-34, 35-54, 55-64 and 65+. 
There is positive growth for all age groups for wage per hour and average hours worked per week. People aged 65+ had the greatest growth in average hours worked per week, followed by people aged 55-64, people aged 15-24, people aged 25-34, and people aged 35-54. People aged 25 34 had the greatest growth in wage per hour, followed by people aged 15 24 and people aged 65+ (they had similar growth), then followed by people aged 55-64 and people aged 35-54.
  • What happened to labour income?

    … but from 2008–2018, wage rates stalled and hours fell for young people

    Average annual growth rates in average wage rate and hours worked per person, by age group, 2008–2018

    This figure is a bar chart showing average annual growth rates in the average wage rate and hours worked per person, by age group for 2008 to 2018. The age groups shown are 15-24, 25-34, 35-54, 55-64 and 65+. People aged 15-24 and 25-34 had negative wage per hour growth and average hours worked per week growth. Average hours worked per week was the largest decline followed by wage per hour. People aged 35-55 and 55-64 had similar positive growth for both components. Wage per hour growth was the largest followed by average hours worked per week. People aged 65+ had the greatest growth of all age groups. Average hours worked per week was the largest followed by wage per hour.
  • What happened to labour income?

    Supply likely grew faster than labour demand in many occupations

     

    This figure is a demand and supply diagram for the labour market. Supply is represented with an upward sloping line. Demand is represented by a downward sloping line. There is a second supply line that has been shifted to the right, representing an increase in labour supply. Points on the axes show equilibrium wage and hours worked. The equilibrium between the demand and the initial supply curves has a higher wage and lower hours worked than the equilibrium between the demand and the second supply curves.
  • Changing employment types

    Young people’s hours fell because of increased part-time employment and decreased full-time employment

    Shares of unemployment, full- and part-time employment, by age group

    This is a panel of 6 stacked area figures. It shows unemployment, full-time and part-time employment by age group for women, men and total. The age groups shown are 15-24 and 25-34. The period of time is 1979 to 2019. For people aged 15-24 there is a significant increase in part-time employment and a decrease in full-time employment. Part-time employment is also increasing for 25-34 year olds. For women aged 25-34, there is increasing labour force participation reflected in increasing part-time and full-time employment. Men have decreasing full-time employment and increasing part-time employment, and their labour force participation has decreased slightly over time.
  • Changing employment types

    On the other hand, older workers increased their participation

    Shares of unemployment, full- and part-time employment, by age group

    This is a panel of 6 stacked area figures. It shows unemployment, full-time and part-time employment by age group for women, men and total. The age groups shown are 35-54 and 55-64. The period of time is 1979 to 2019. For women in both age groups there is an increase in labour force participation, both part-time and full-time employment are increasing. Men aged 35-54 had slightly declining participation. Men aged 55-64 had decreasing participation until about 2000, then increasing participation. In total, participation increased, part-time employment increased and for people aged 55-64 full-time employment increased.
  • The wage puzzle

    It is harder to explain the ‘wage puzzle’. Stalling wage rate growth was not limited to specific education levels

    Average annual growth in real wage rates, by highest level of education, 2001–2018

    This figure is a bar chart that plots the average wage rate growth for people aged 15-24 and 25-34 from 2001-2008 and 2008-2018 by education. The education levels included are: postgraduate degrees, bachelor degrees, diploma or certificates III or IV, year 12, and year 11 and below. Between 2001 and 2008 growth was positive for all education groups but between 2008 and 2018 growth was negative or close to zero for most education groups. It has two text boxes, one attached to each time period. The first reads 'all increased' the second reads 'most decreased'.
  • The wage puzzle

    In contrast, older worker’s wages grew during both periods

    Average annual growth in real wage rates, by highest level of education, 2001–2018

    This figure is a bar chart that plots the average wage rate growth for people aged 35-54 and 55-64 from 2001-2008 and 2008-2018 by education. The education levels included are:  postgraduate degrees, bachelor degrees, diploma or certificates III or IV, year 12, and year 11 and below. Between 2001 and 2008 growth was positive for all education groups and between 2008 and 2018 growth was positive, but smaller, for all education groups. It has two text boxes, one attached to each time period. Both read 'all increased'.
  • Occupational scores— the ‘occupational ladder’

    Looking at occupation types shows differences in the age groups

    The AUSEI06 is a scoring of all occupations from 0 to 100 based on each occupation’s educational requirements and earning potential

    This figure shows a line from 0 to 100 with occupations ranked along the line. From 0 to 25 it goes farm, forestry and garden workers; mobile plant operators; construction and mining labourers; and then machine and stationary plant operators. From 25 to 50 it goes automotive and engineering trades workers; sales assistants and salespersons; hospitality workers; carers and aides; construction trades workers; and then hospitality, retail and services managers. From 50 to 75 it goes sales representatives and agents; office managers and program administrators; engineering, ICT and science technicians; and then health and welfare support workers. From 75 to 100 it goes chief executives, general managers and legislators; design, engineering, science and transport professionals; ICT professionals; legal, social and welfare professionals; health professionals.
  • Distribution of occupations

    Workers aged 25–54 were in higher-scored occupations in 2018 …

    Empirical probability density functions of occupational score

    Slide 12 shows a line chart that plots the PDFs of occupational score in 2001 and 2018. It is broken into three age groups: one for people aged 20 to 24, one for people aged 25 to 34 and one for people aged 35 to 54. Each of those three panels has two lines, one that represents the PDF in 2001 and on that represents the PDF in 2018. The PDFs are all bi-modal and have one hump around the score 30 and a second around the score of 80. For people aged 20 to 24, the first hump is much taller than the second. For the other age groups, the first hump is still taller, but the difference is not as large. People aged 35 to 54 have the most mass around the second hump compared with the other two groups. The PDFs for 2018 are shifted to the right when compared to the PDFs from 2001.
  • Graduate outcomes

    … but occupational scores for graduates have declined

    Average occupational score in the first four years after graduation, by graduation cohort, 2002–2018

    Slide 13 shows a line chart that plots the average occupational score grouped into graduate cohorts 2001–2003, 2004–2006, 2007–2009, 2010–2012 and 2013–2015. The five lines are all upward sloping, with different slopes. The lines for the 2001–2003, 2004–2006 and 2007–2009 cohorts look to be above the lines for the 2010–2012 and 2013–2015 cohorts.
  • Government transfers

    Transfers decreased, especially for people aged 15-19. Policy changes reduced eligibility among young people

    Percentage of young people receiving transfers, 2001–2018

    This is a line chart of the percentage of young people who are reliant on transfers, over 2001 to 2018. Reliance is defined as having more than 50 per cent of income sourced from transfers. For people aged 15-19 reliance has decreased from 16 percent to 5.6 percent. For people aged 20-29 reliance decreased in 2004 and increased following the GFC, but overall reliance remains at a similar level in 2018 to 2001. For people aged 30-34 reliance has slightly decreased.
  • Changes to transfer eligibility

    The number of Family Tax Benefit (FTB) recipients decreased

    Number of recipients aged 15–34, 30 June 2002–2019 (eligibility: blue = expanding; red = tightening)

    This is a line chart presenting the number of recipients aged 15-34 for a variety of payments and also presents policy changes to the eligibility for payments in text boxes. The text boxes are outlined in blue if the policy expanded eligibility and red if the policy tightened eligibility. The chart cover the period between 2002 and 2019. This chart shows that the number of recipients for FTB-A and FTB-B have declined over the period. FTB-A has decreased from over 700 thousand recipients to under 500 thousand. FTB-B has decreased from under 600 thousand recipients to almost 400 thousand recipients. The number of Newstart allowance recipients decreased from 250 thousand to 150 thousand by 2008, but increased following the GFC, reaching a spike of 250 thousand recipients by 2015, and since 2015 the number of recipients had declined. Years of rising unemployment are shaded in grey on the chart (2008-2009 and 2011-2015). Periods of rising unemployment correspond with increases in the number of Newstart allowance recipients. The policy boxes indicate that in 2012 people aged 21 were made ineligible for Newstart allowance.
  • Changes to transfer eligibility

    The number of Youth Allowance recipients decreased and the number of Newstart Allowance recipients fluctuated with the unemployment rate

    Number of recipients aged 15‑34, 30 June 2002–2019 (eligibility: red = tightening)

    This is a line chart presenting the number of recipients aged 15-34 for a variety of payments and also presents policy changes to the eligibility for payments in text boxes. The text boxes are outlined in blue if the policy expanded eligibility and red if the policy tightened eligibility. The chart covers the period between 2002 and 2019. 
This chart shows the number of recipients for Parenting payments, Newstart allowance, and Youth Allowance student. The policy boxes show policies to tighten eligibility for parenting payments have been implemented. In 2006, new applicants must have had a youngest child aged under 8 (if the applicant was a single parent) and under 6 (if the applicant was partnered), existing applicants were grandfathered and in 2013 grandfathering was removed. These policies contributed to the decrease in the number of parenting payment recipients from about 300 thousand to under 200 thousand over the period.
The number of Youth Allowance student recipients decreased from about 300 thousand to under 200 thousand recipients, there was a spike in recipient numbers following the GFC. The policy boxes indicate that people aged 16-17 were made ineligible for youth allowance student in January 2012, this caused a sharp decrease in the number of recipients.
  • Changes to transfer eligibility

    Numbers of Disability Support Pension recipients remained relatively stable and numbers of Carer Payment recipients increased

    Number of recipients aged 15‑34, 30 June 2002–2019 (eligibility: blue = expanding; red = tightening)

    This is a line chart presenting the number of recipients aged 15-34 for a variety of payments and also presents policy changes to the eligibility for payments in text boxes. The text boxes are outlined in blue if the policy expanded eligibility and red if the policy tightened eligibility. The chart covers the period between 2002 and 2019. 
This chart shows the number of recipients for disability support pension, youth allowance for job seekers, and carer payment. 
The number of disability support pension recipients have increased but at a decreasing rate, from over 100 thousand to almost 120 thousand recipients. In 2006, eligibility for disability support pension was tightened by introducing a 15-hour work capacity rule (rather than 30). In January of 2012, eligibility was tightened again with stricter impairment tables introduced. 
The number of youth allowance job seeker recipients fluctuated around 100 thousand recipients. Years of rising unemployment are shaded in grey on the chart (2008-2009 and 2011-2015). Periods of rising unemployment correspond with increases in the number of recipients. In 2012 people aged 21 were made eligible for youth allowance job seeker (after being made ineligible for Newstart allowance). This caused a sharp increase in the number of recipients. 
The number of carer payment recipients increased steadily from under 10 thousand to almost 40 thousand recipients. In 2009, the eligibility for carer payment was expanded to such that more cares of disabled children could get access.
  • Young people are staying at home

    Estimated savings young people make from living in the parental home

    Average savings for 20-34 year olds, 2019 dollars (left); ratio of savings to income (right); 2006–2018

    This figure contains two charts side by side. 
The chart on the left is a stacked area chart that shows the average real saving for 20-34 year olds who live with their parents, by saving source, between 2006 and 2018. From 2008 to 2018, the yearly average real saving decreased from about $24 700 to $19 900. Housing (or accommodation costs) made up about 55 per cent of the savings, groceries about 25 per cent and household expenses about 20 per cent. The chart on the right is a line chart that shows the ratio of real total savings to real total income by age group, between 2006 and 2018. For people aged 20-24, total savings are on average equivalent to about 35 per cent of total income. For people aged 25-29, total savings on average are equivalent to about 10 per cent of total income. For people aged 30-34, total savings are on average equivalent to about 4 per cent of total income. These ratios have remained similar across time.
  • Young people are staying at home

    Most young people who live at home are in higher-income households

    Percentage of people aged 20-34 who live with their parents, 2001–2018

    This figure contains two line charts side by side. The chart on the left shows the percentage of young people who live with their parents by age group, between 2001 and 2018. The percentage of people aged 20-24 who lived with their parents increased from 46 per cent in 2001 to 63 per cent. The percentage of people aged 25-29 who lived with their parents only increased slightly from 19 per cent in 2001 to 22 percent in 2018. The percentage of people aged 30-34 who lived with their parents remained relatively unchanged, at around 10 per cent. The chart on the right shows the percentage of people aged 20-34 who lived with their parents by income quintiles, from 2001 to 2018. Over 60 per cent of people aged 20-34 who lived with their parents, lived in households whose total household disposable income was in the top two income quintiles.

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  • Media release
  • Contents
  • Chart data
  • Podcast

Lost decade of income growth for young Australians

Young Australians’ incomes are declining while older Australians’ incomes grow. Young people are at risk of being left further behind by the COVID-19 crisis.

The Productivity Commission has found that between 2008 and 2018, the average real incomes of young people (aged 15-34) declined while older Australians’ incomes continued to increase.

“Young people have experienced a ‘lost decade’ of income growth. This means they entered the COVID-19 crisis already on lower wages and usually with limited savings,” Commissioner Catherine de Fontenay said. “Young people face discouraging prospects in a tough job market; and there is a danger they will simply give up on their aspirations as they take positions further down the jobs ladder,” she said.

The report Why did young people’s incomes decline? provides an in-depth analysis of how income sources evolved between 2001 and 2018 for various age groups, and why. It shows the main driver behind lower incomes for young people is falling wage income.

“It turns out that the ‘low wage growth’ story is essentially a story about people under 35,” Catherine de Fontenay said. “If we look at average wage growth for those over 35, it hasn’t slowed.”

The labour market became more competitive after the Global Financial Crisis (GFC), and young job-seekers bore the brunt of that. Firms offered lower starting wages. Young workers turned to jobs that did not fully use their qualifications and to part-time work.

The report shows that long term unemployment and underemployment rose after the GFC.

“The rise of part-time work meant that we did not see a large increase in unemployment, but many young people wanted to work more hours,” Catherine de Fontenay said.

Over this same period government support decreased for many students and young parents, because eligibility for Youth Allowance and Family Tax Benefits was tightened.

Government payments to the young are indexed to the Consumer Price Index and have not grown in real terms. In contrast Age Pension has increased because it is indexed to wage rates, which have grown faster than prices.

With incomes dwindling, more young people turned to their parents for support since 2008. Cash transfers increased and young people stayed at home longer. Living at home represents a sizable saving in terms of rent and other expenses.

“While these intra family transfers have helped cushion the fall in young people’s income, they have not been possible for all families, especially low income families,” Commissioner Catherine de Fontenay said.

The report Why did young people’s incomes decline? can be found at www.pc.gov.au

Media requests

Leonora Nicol, Media Director – 0417 665 443 / 02 6240 3239 / media@pc.gov.au

  • Cover, Copyright and publication details, Contents, Acknowledgements, Abbreviations, and Glossary
  • Executive summary
  • Chapter 1 About this study
    • 1.1 Income growth across countries
    • 1.2 The broader Australian context
    • 1.3 An overview of our approach
  • Chapter 2 Young people’s incomes declined
    • 2.1 After 2008, young people’s disposable incomes declined
    • 2.2 Decomposing gross income
  • Chapter 3 Determinants of changes in labour income: hours worked
    • 3.1 Labour income, wage rates and hours worked
    • 3.2 Hours worked, participation and employment
    • 3.3 The changing nature of unemployment
  • Chapter 4 The wage puzzle: stagnating wages only for young people
    • 4.1 The wage puzzle: wage rates grew for people aged 35-64, but stagnated for people aged 15-34
    • 4.2 An imbalance between labour supply and demand could explain the wage puzzle
    • 4.3 Other explanations for the wage puzzle
  • Chapter 5 The role of government transfers
    • 5.1 The Australian transfer system and young people
    • 5.2 Contribution of transfers to young people’s income and income growth
    • 5.3 Changes to transfer eligibility
    • 5.4 Indexation of transfers
    • 5.5 Changes in the incomes of recipients
  • Chapter 6 The role of other income
    • 6.1 Contribution of other income to young people’s income growth
    • 6.2 Why did business income decrease?
    • 6.3 Investment income and inheritances
    • 6.4 Parents are supporting young people
  • Appendix A Comparing data sources
  • Appendix B Shift-share decomposition
  • Appendix C Additional labour market analysis
  • Appendix D Changes to the eligibility for transfers
  • Appendix E Savings of young people who live with their parents
  • References

The following spreadsheet contains the data used to construct charts within the research paper.

Commissioner Catherine de Fontenay and Professor Jeff Borland from the University of Melbourne discuss research on young people’s incomes and the role of labour markets. They discuss how difficult it is for many young people to climb the jobs ladder and the implications of that and of the weak labour market that prevailed before the COVID 19 pandemic started.