It’s easy to spot a member of the recession generation. They’re the sober, thoughtful young people. They’re our sons, daughters, nieces, nephews and friends aged between about 18 and 23 and beginning their adult lives at a time when six million are on benefits. Like the generation above, they love iPods and TopShop. But they’re not as brash or confident as their older siblings. And this is because they have just taken an almighty knock at an early stage in their young lives. They feel that someone has stolen their future. Generation Recession are confused and cross because they’ve been sold a pup by the government, their teachers and even their parents. Everyone impressed on them the vital importance of continuing education: you must get A*s at A-level, you must go to university, said the grown-ups. Well — why? What exactly can they do with their hard-won degrees? Each morning, as they wake up in their childhood bedrooms (no job, so no renting) and contemplate the prospect of another day writing letters begging for unpaid work experience, they wonder: what was all that schooling for?
This feeling — of despair, despondency and betrayal — is likely to have a long-lasting effect on their beliefs and values. And this is why Generation Recession is far more than just an economic horror story. The financial crisis will shape their whole outlook on life. They’ll be irrevocably moulded by the credit crunch, and their experience of it may well define Britain’s future. They feel not just different from, but mugged by the baby boomers, who ran up an almighty debt which those seeking work must now repay.
According to a new sub-branch of economics, the way we view risk, the way we choose to invest, even our political predilections are determined by the prevailing economic conditions in our late teens and early twenties. In a paper called ‘Depression Babies’, two American economists, Ulrike Malmendier of Berkeley and Stefan Nagel of Stanford, discovered that the way stock markets behaved when people were young shaped what they did with their money for the rest of their lives. ‘Experiences early in life still have significant influence, even several decades later,’ they argued. The study confirms what common sense suggests We assume that what happens in our teens is the way of the world, that things will carry on like that for ever — and this can have a profound effect on our decision-making. The children of Germany’s hyperinflation took a careful approach to the money supply ever after. Young households didn’t bother investing in the stock market much in the 1980s, since returns in the 1970s had been so disappointing (although, as it happens, they missed out on a two-decade bull market in stocks). People who came of age while inflation was raging tended to be suspicious of low-yielding but secure bonds, and so on. The result? Different generations with completely different habits.
This is reinforced in a paper by Paula Giuliano and Antonio Spilimbergo for the Centre for Economic Policy Research. Drawing on census data, they found that ‘individuals experiencing recessions during the formative years believe that luck rather than effort is the most important driver of individual success’. This has huge political import, as it shapes a generation’s views of wealth and poverty. Recession babies are, say the authors, ‘more willing to increase taxes’ — and little wonder. They’ll be keen to help their less fortunate comrades, because they know it might just as easily have been them. But, strikingly, this is not good news for Labour. They tend to remember which government dropped them in this mess, and be suspicious about government authority.
To prove the point, look at the ‘Great Depression’ generation of the 1930s. They grew up favouring the big state, social justice, and with a fierce belief in the wickedness of unemployment — ideas that dominated political debate for decades afterwards. Then compare them in outlook to Thatcher’s children, who came of age in the 1980s and typically slotted straight into the entrepreneurial, small-state, low-tax tribe, with an instinctive hostility to taxes and state regulation. Generation Y and Z, emerging into the great bubble that expanded from the mid-1990s until the big bang last year, are the most exuberant of the lot. They hop from job to job, take constant career breaks and max out their credit cards in the simple belief that the global economy is just one big, bountiful orchard, full of low-hanging fruit. Their creed is that debt levels, as such, don’t matter: it’s the interest payments that count. Only a generation that has not suffered a fluctuation of interest rates could be so imprudent. Even the recession hasn’t really dented their belief in the world.
They’re a far cry from the troubled younger generation. Even if there were no recession, other factors are conspiring against Generation Recession. One is simply that there is a glut of them. There are currently 110,000 more 23-year-olds than there are 31-year-olds. And there are more graduates than ever: their numbers rose 5 per cent last year. Even if the number of graduate jobs they are chasing had not fallen by 28 per cent (which it has), they would end up fighting each other for unpaid internships.
Also, older workers are retiring later. Their pension funds may be shot to pieces, but they are also healthier, and working into later life. If competition from older workers was not enough, there is also an influx of bright, motivated and highly qualified immigrants — whose numbers have doubled in the last ten years. This ability to hire cheaply means that employers respond to the credit crunch with recruitment freezes. This sees the burden of unemployment fall disproportionately on the young. The door is slammed in their face.
So far, so grim, but evidence emerging is that it’s not all bad news for the Generation Recession. Their early exposure to suffering has, like the Spartans, made them tough and fairly stoical. ‘They are really very sensible,’ says Peter Marsh, a director of the Social Issues Research Centre, who wrote a recent report on the attitudes of this troubled group. ‘It chimes with what we have been looking at for a number of years, which is that they are much more sober than their parents, or particularly Generation X. If you grow up in a world dominated by 9/11 and the London bombings, then you tend to already have a fairly realistic view of the world.’ His research suggests they are already changing: more inclined to save, and less inclined to get into debt (except for student loans, which they regard as a form of tax). They are, as the posters put it, keeping calm and carrying on. But they are changing the kind of work they are looking for, and adjusting their expectations of employability. This is, for many, a bitter pill: the debt and the MA does not entitle someone to what’s described as a ‘graduate job’.
What is really eating so many of Generation Recession is that they were, in effect, mis-sold higher education. They were told that graduates earn much more than those with no degrees. The argument ran like this: you may leave university with an extra £21,000 of debt but the average graduate will — over a lifetime — earn £400,000 more than someone who goes no higher than A level. Ministers have stopped using this figure recently, as it was more than double what companies like PricewaterhouseCoopers now believe the graduate ‘premium’ to be. In fact, for many, it does not exist at all.
The old joke — ‘What do you say to an arts graduate?’ ‘Big Mac and fries, please’ — is no lau ghing matter now. Research from Kent University shows that a third of graduates are on burger-flipping jobs five years after leaving university. When Thatcher left office, just a quarter suffered this ignominy. Consider the thousands of students who might have gone straight into work, but were instead persuaded to study for a fairly pointless degree in a far from prestigious university. These are the ones who have the most right to feel betrayed. They are saddled with awful debt and, when they do find a job, they often have to report to someone younger, who left school aged 18 and worked their way up. Labour’s drive to push 50 per cent of young people into university has, of course, led to a proliferation of obscure courses that serve neither students nor society. The tragedy is that so many thousands of young people were conned into taking them.
Longer term, however, what will someone who is now 18 or 19 take away from this recession? And what does that tell us about what economic and political debate will be about in two or three decades’ time when, inevitably, they are running the place?
Well, for starters, they are likely to be suspicious of the stock market. Shares are, broadly, still worth less than they were ten years ago. They will expect that to continue, and they’ll squirrel their money away in gold or cash. The mere mention of a hedge fund will give them palpitations. Many, of course, might just emigrate. Globalisation means it has never been easier or cheaper to travel and stay in touch via the internet. Just as some parts of Britain bear the stamp of the waves of Spanish and Portuguese emigration so might there soon be parts of China and Singapore that will be slowly Anglicised.
The British jobs market is not expected to recover for another three years. And, given that we have already had two years of financial collapse, it’s inevitable that these youngsters will be moulded by the bursting of the debt bubble. But if they turn out to be more interested in saving than spending, then perhaps it will mean our grandchildren are less likely to suffer another depression. It may make for a better balanced, more prosperous and fairer country. But it will also be a long, hard slog.