Youth don’t like capitalism; here’s why
Iwas at an event recently where several top business executives were perplexed about why Americans under 40 are so disillusioned with capitalism. What could they do to restore trust in our economic system?
My suggestion was simple: Treat workers better. This wasn’t the answer they wanted. Many rushed to tell me how generous their pay raises have been, how easy it is to go from an entry-level job to management at their company, and how they have diversified their workforce. These are all welcome efforts, but they miss the bigger picture. Young people in America have come of age during the Great Recession, the sluggish recovery that followed and then the coronavirus pandemic. Unemployment has been 10% or higher twice in the past 15 years. Young workers have seen how expendable they are to companies and how quickly financial security can evaporate.
Millennials have had such a tumultuous start in the workforce, they have been nicknamed the “unluckiest generation.” They are struggling to navigate the most unaffordable housing market since the early 1980s. And that’s before anyone talks about the larger challenges of climate change, wars and political partisanship and paralysis.
No one expects business leaders to solve all these problems. But they need to start acknowledging how dramatically the relationship between workers and employers has changed in the past half-century. People no longer work for the same company for the bulk of their careers. There are benefits to job-switching: It usually leads to bigger pay raises. But it has made many other aspects of people’s financial lives more complicated and less secure. Each new job has a unique, complex benefit package. Workers are now on their own to figure out — and fund — their retirement, plus a growing share of their health care and educational training. It is even more complicated for the millions of people in gig, freelance or contract jobs who are entirely on their own.
“The shift from defined benefit to defined contribution has been, for most people, a shift from financial certainty to financial uncertainty,” BlackRock chief executive Larry Fink wrote in his annual letter published last week.
Many Americans aren’t saving enough for retirement in 401(k)s and other individual plans. Pension plans took care of this uncertainty by guaranteeing a monthly payment for as long as someone lived. The risks were on the company.
Fink was refreshingly blunt that it’s not hard to figure out why millennials and Gen Z workers are economically anxious. “They believe my generation — the baby boomers — have focused on their own financial well-being to the detriment of who comes next. And in the case of retirement, they’re right,” he said.
While Fink correctly identified a key problem, his proposed solution wasn’t to bring back pension plans. It was a new BlackRock product that helps people better manage their retirement spending. In other words, it’s a way for BlackRock to likely make more money.
It’s a shame Fink didn’t use his bullhorn to call on business and political leaders to shore up Social Security. It’s hugely popular and the country’s most successful policy to keep people out of poverty. Young people have seen the headlines that, if nothing changes, Social Security will start having to reduce benefits in 2034. Fink calls for raising the retirement age. A better way to ensure Social Security will be there for younger generations is to raise taxes slightly on corporations and the wealthy. It wouldn’t take much to restore this critical source of financial security for millennials and Gen Z.
Another way to look at how much less workers are getting from companies is a metric known as labor’s share of national income. What executives don’t like to talk about is that while pay has increased a lot in the rebound from the pandemic, corporate profits have soared even more. The share of the economic pie that goes to worker pay remains well below historic norms, as even Goldman Sachs has pointed out. It’s one more way that today’s employees are losing ground compared with prior generations.
Young Americans have had a harsh introduction to capitalism. Even as the economy is back on strong footing, many remain deeply anxious. If business leaders want to change that, a wise place to start would be to give workers a secure retirement again, starting with Social Security.