Generations@Work

If you took a course in economics you recognize the formula in the title, but not the term “Gen-Omics,” which is my own invention, and should not be confused with the study of DNA. I mean for it to provoke discussion of our economy from a generational perspective. Is “generation” a relevant social category when it comes to making sense of current economic events?

Economic analysis based on race, class, gender - commonplace. But generations? Beyond the endless discussions about the looming social security “crisis,” are there really economic issues that deserve scrutiny on the basis of how generations might perceive and experience these issues? And even if there are generational differences on matters like budget deficits, trade and energy (to name only a few), are these differences important enough to merit analysis on generational terms?

Over the course of this year, and perhaps beyond, I intend to explore such questions. I coin the term gen-omics now because I intuitively sense that the economics of generations may prove more interesting, and perhaps more important, than we think.

We know there is an intense conversation that has been going on for some time about generations in the workplace. Think of this as generational microeconomics. Many of us have created an active discussion about the generational mix at work; in my case through this blog, research, speaking and consulting. Our hypersensitivity to the contemporary dynamics in the workplace makes sense as the workplace is where generations most prominently intersect and interact. But has all of this attention on the workplace come somewhat at the expense of looking at the big picture, the “macro” picture?

In the first act of co-creation of this new field I am calling Gen-omics, let’s go back to a few basics, starting with the essential income model:

Y= C + I + G + X - M

Y = National Income

C = Household Consumption

I= Investment

G = Government Spending

X = Exports

M = Imports

 

How can this income model help get us started? We’ll start by asking just a few general but topical questions. For instance:

Question 1. If income inequality continues to rise in this country as it has for the past seven years, will this inequality disproportionately effect younger workers ability to consume (C)? Recognizing that young workers almost always make less than older workers, the question is whether young workers will receive a smaller share of national income over time?

For example, we know that many older companies, including now most of the US auto industry, have wage agreements/policies establishing two and even three tiered wage plans that require new hires to work at wage rates less than half those of older workers. In the most recent union contracts negotiated in the auto industry, not only are there now tiered wages systems, but the new hires of today and tomorrow will never reach the wage rates of today’s older workers. What this means in practice is a widening gap between the income of younger workers relative to their older co-workers. And the wage and income gap widens at least in manufacturing. But is this just an auto or manufacturing-sector story? Don’t bet on it.

Question 2. Does the soaring US national debt affect economic outcomes differently for different generations? If the national debt grows - which it almost certainly will - the relative burden shifts to younger people who will live longer and pay a higher portion of their life-long earnings in the form of higher taxes or reduced government services in order to pay the interest on the national debt. As the national debt grows and the interest payments on that debt also grow, there is potentially less government revenue (G) for things like education and health care. Conversely, someone is buying those government bonds and thus making the income of this investment. These securities are purchased by wealthy individuals as a hedge against riskier investments, as well as by institutional investors like mutual funds and pension funds. And who might those collective investors be? Young people? In some cases, yes, but given that most young people are not big savers, most of the income transfer - interest payments on the nation’s debt - is really a generational income transfer from younger to older people (spenders to savers).

Question 3. Does a burgeoning trade deficit (X-M) have a generational effect? Rising imports, especially of cheap Chinese manufactures, could be seen as a plus for younger people who over time will presumably pay less for much of what they buy. Older workers or retirees have presumably done most of their personal consuming and may reap fewer of the benefits of cheap toys and electronics. But, these imports also represent job losses particularly in regions where manufacturing was once prominent like the Midwest and upper Great Lakes. Cheap imports can also have a depressing effect on wages generally, a phenomenon that hurts younger workers just entering the labor force.

Cheaper imports may also mean higher profits for multinational firms and thus for the shareholders of these firms. Globalization can be a boon to profits in a number of ways. The most obvious is the ability to make things cheaply overseas and sell them at a relatively high price here (hello Nike sneakers). Global supply chains allow firms to outsource some part of the cost of doing business, possibly lowering prices for consumers, but also, again, threatening jobs here and putting downward pressure on wage costs. And who reaps the profits? Shareholders obviously, but again, which generation(s) does most of the savings and investing? In fact, times have never been better over the past decade or two for investors. While the markets are hurting at this moment, campared to, say, 1992, markets around the world have soared to the delight of people here and abroad with the means to invest in a serious way. This excludes most younger workers.

Question 4. Education. It’s now a cliche to mention the value of an education in today’s economy. But this education comes at a very high price. Some economists might say that the higher price reflects the higher value of education and thus the investment in it now makes great economic sense for most college grads. Fair enough. But, college costs and student debt are in the stratosphere and climbing. Yes, perhaps in the long run, over a lifetime, the economic benefits of higher education pay off. but many students today will still be paying off college and grad school debt well into their thirties and forties, the very years when they should also be buying homes and perhaps starting a family. What will that education debt burden mean to these people then?

And who profits in the near term from all of this education debt? The older folks; those savers/investors who have been doing so well in the markets are some of the same investors profiting from the sale of investment instruments used to finance students’ educations. Another income transfer, most likely?

Question 5. Housing.  Well, here’s one issue that might work in the Millennials’ favor. If you are a home owner, and roughly sixty percent of American households are, then you probably have experienced some nervous moments (or worse) lately. We may now be in one of the most severe market corrections in recent memory. Crises always seem to need a name; this one is called the sub-prime mortage crisis. I’ll spare the gory details, but the sum of it to this moment has meant historically high foreclosure rates. In Michigan, tens of thousands of people have lost homes, and many don’t even bother bringing the bank the keys.

As bad as this is, the calamity does not stop there. This bit of market irrational exhuberance is shaking the foundations of the US, and possibly the global, financial markets. Each day brings new news of a pillar of Wall Street announcing monstrous loses attributed to derivatives of bundles of these sub-prime loans that are now worthless. This is getting really serious.

What, though, does this mean for our generational story? Well, which generations own real estate? Older Silents, Boomers, and lots of Gen X’ers.  In fact, without knowing any of the demographics behind this latest financial crisis, I supsect that it is Gen X’ers, working class and poor Gen X’ers who made a grab at a major piece of the American Dream, who are the people now caught in this historic liquidity crisis, and thus are losing their homes in record numbers. Real estate and home values are falling in nearly every region of the country including the once-red-hot-markets in the Northeast. Housing prices in not-so-hot-markets are said to have already fallen more than thirty percent.

One might ask, who hasn’t lost in this economic malestrom?  Millennials!  Most Millennials are not yet of home buying age, and those that are are still renting and paying off student loans. Presumably, however, lots of Millennials will follow the pattern of previous generations and take the plunge into the world of home ownership before too long. And when they do, homes will almost certainly be cheaper than homes have been in decades. It would not surprise me at all to learn that some “savvy” Millennials are prowling the websites of banks to find great deals on foreclosed properties. It was only a few years ago that Boomer parents of Millennials were lamenting out loud that no sooner did they finally finish paying for part of the of college that they had to start thinking about helping with that first down payment, or else see son or daughter spend most of their wages on rent.

And what about rents?  I’m not a landlord, but with so much over capacity out there right now I suspect that this is a good time to be a renter. So good, in fact, that some Millennials may conclude that being permanent renters might not be so bad, tax advantages aside.

Gen-omics? This big one looks like it works in favor of the Millennials while almost everyone else, especailly young Gen X’ers, are getting clobbered.

The questions could go on, at least in my mind anyway. And certainly, not every generational issue looked at in macroeconomic terms leads to an income transfer from younger to older. There are hundreds of issues where the generational winners and losers are reversed, or issues where there are no generational winners or losers at all.

But why should we think about these or other such questions in generational terms? I indicated at the beginning that some balance between the near-obsession with generations in the workplace, especially the rise of the Millennial generation, has everyone looking at the branches on the trees. What about looking at the forest? My view is that the forest holds many important stories, even mysteries, and that we need to pay equal attention to it. After all, it is hard to imagine that some of these macro issues are not, or will not, soon be influencing attitudes in the workplace. Ignored, these macro issues could be mistaken by some as simply workplace issues, rather than social or political ones.

And for me there is a personal side to my questions. I was born a few years after the end of World War II. I grew up during a period of unprecedented economic growth and prosperity. Not only were we the wealthiest nation on the planet, but that wealth was shared more equitably than in any previous era. All of this was happening while older Americans were investing in the economic well being of younger Americans through the GI Bill. Taxpayers were also doubling government spending on education at all levels of society. There was a “red scare” and an alleged “missile gap” spawning a massive increase in government investment in basic science as well as increased investment in science in the classroom. Tax dollars built an interstate highway system and put a man on the moon. This, I believe, served our nation well, and those of us who grew up in the 1950’s and 1960’s were the principal beneficiaries of this investment. Many of these investments took years to pay off economically. And yet, somewhat older Americans - my parents and grandparents - made made them to all of our benefit.

Clearly these are not the Glory Days. The global economy has changed almost everything about our economic life today in comparison to fifty years ago. No question. Having said that, I am still deeply concerned that beneath the nation’s experience of globalization lies a generational story substantially less promising and less optimistic than the generational story many of us experienced as we came of age.

In the weeks and months ahead I hope to continue to pursue this new field of gen-omics. Your contributions are welcome. This is not intended as a forum to incite the generational equivalent of class war. On the contrary. My goal is to first explore the very idea of gen-omics and and from there see if we gain a deeper and more revealing analysis of generational life in our society writ large as well as in the workplace where the generations meet.

 

 

 

 

This entry was posted on Tuesday, January 15th, 2008 at 6:02 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.