Climbing the ladder

Report on young people’s income prospects is too pessimistic

It is no secret that young adults today face a number of challenges that might be considered unique to their generation. The most often-noted problem is the high cost of buying a house.

However, the current generation just starting out in their careers after post-secondary school (late 20s and early 30s), by definition, will not recall when the labour market, or housing, or wages, were worse.

That is the context in which this week’s report from the Conference Board of Canada should be placed. The report notes young adults are deeper in debt “largely because of higher house prices, and therefore may face greater uncertainty than their parents.”

The Conference Board also claims that incomes today are more unevenly distributed than ever. As proof, the Toronto-based organization surveyed almost three decades’ worth of tax data. The broad conclusions are that the disposable incomes of today’s 50- to 54-year-olds, on average, are 64 per cent higher than the average income of 25- to 29-year-olds. Three decades ago, the gap was 47 per cent.

Some of the report’s conclusions result from how the data is read, as opposed to the data itself. The point about higher house prices and higher debt is just one example. Thirty years ago, anyone with a mortgage pondered how to pay it off when doubledigit interest rates were the norm. In 1984, for instance, the Bank of Canada rate ranged from a low of 9.98 per cent to a high of 13.24 per cent.

Those were the rates at which the central bank lent to financial institutions, not necessarily the rates which homeowners paid. The point: It is not at all clear that today’s larger mortgages at three or four per cent are any less manageable than smaller mortgages in the 1980s at a 15 per cent rate. The foreclosure statistics from the 1980s would seem to suggest paying off the mortgage was much more difficult back then.

The Conference Board is also concerned about the ostensible income gap between 50-somethings and 20-somethings, and the relative growth of that gap. But 30 years ago, many Canadians had barely recovered from the early 1980s recession — a downturn far more severe than the 2008-2009 recession.

So another explanation for the wider gap between the older and younger age cohorts today, compared with three decades ago, is that Canada was a poorer country back then. The people now in their 50s survived and thrived in the decades since. That says much about the general prosperity that has lifted Canadian households since the 1980s, when two recessions hit early that decade. It comes as no surprise that in a poorer age, the 1980s, incomes of all cohorts were closer than now — a wealthier age that experienced only one relatively mild recession in all of the years between 1992 and 2014.

The Conference Board finds the increased income gap between those in their 20s and 50s as evidence for concern. We see it as evidence of a mostly robust economy over the past few decades, which naturally benefited those with long-established careers and income from investments, not those just starting out and with neither.

The Conference Board reporti s too pessimistic. The real test of whether Canadians in their 20s are disadvantaged relative to those now in their 50s will come as younger Canadians move up the career ladder, whether they too will prosper over the coming decades. That is a measurement no one can yet make.