10 Economic Facts About Millennials

Millennials, the cohort of Americans born between 1980 and the mid-2000s, are the largest generation in the U.S., representing one-third of the total U.S. population in 2013.

With the first cohort of Millennials only in their early thirties, most members of this generation are at the beginning of their careers and so will be an important engine of the economy in the decades to come.

The significance of Millennials extends beyond their numbers. This is the first generation to have had access to the Internet during their formative years.

Millennials also stand out because they are the most diverse and educated generation to date: 42 percent identify with a race or ethnicity other than non-Hispanic white, around twice the share of the Baby Boomer generation when they were the same age.

About 61 percent of adult Millennials have attended college, whereas only 46 percent of the Baby Boomers did so.

Yet perhaps the most important marker for Millennials is that many of them have come of age during a very difficult time in our economy, as the oldest Millennials were just 27 years old when the recession began in December 2007. As unemployment surged from 2007 to 2009, many Millennials struggled to find a hold in the labor market. They made important decisions about their educational and career paths, including whether and where to attend college, during a time of great economic uncertainty. Their early adult lives have been shaped by the experience of establishing their careers at a time when economic opportunities are relatively scarce. Today, although the economy is well into its recovery, the recession still affects lives of Millennials and will likely continue to do so for years to come.

This report takes an early look at this generation’s adult lives so far, including how they are faring in the labor market and how they are organizing their personal lives. This generation is marked by transformations at nearly every important milestone: from changes in parenting practices and schooling choices, to the condition of the U.S. economy they entered, to their own choices about home and family. However, in many cases, Millennials are simply following the patterns of change that began generations ago.

Millennials are also the generation that will shape our economy for decades to come, and no one understands that more that the President. It’s why he has put in place policies to address the various challenges their generation faces. This includes policies such as: making student loan payments more affordable; promoting digital literacy and innovation; pushing for equal pay and paycheck fairness; supporting investments and policies that create better-paying jobs; connecting more Americans to job training and skills programs that prepare them for in-demand jobs; supporting access to credit for those who want to buy a home; and increasing access to affordable health care. And it’s why the President will continue to act with Congress and on his own where he can to build on this progress to expand opportunity for Millennials and all Americans.

Fact 1: Millennials are now the largest, most diverse generation in the U.S. population.

Millennials now represent the largest generation in the United States, comprising roughly one-third of the total population in 2013. What’s more, the largest Millennial one-year age cohort is now only 23. This means that the Millennial generation will continue to be a sizable part of the population for many years (Figure 1).

Aside from their numbers, Millennials’ diversity sets them apart from other generations. Many Millennials are immigrants or the children of immigrants who arrived in the United States as part of an upsurge in immigration that began in the 1940s. The share of people age 20 to 34 who were born in a foreign country is now around 15 percent – much higher than it was in 1950 and near the peak of almost 20 percent seen in 1910 during the last great wave of immigration to the United States (Figure 2).

 

This influx has contributed to the large size of the Millennial generation and helped make it the most diverse generation in the post-war period. As Figure 3 shows, the share of those age 15 to 34 who identify as non-Hispanic white fell 20 percentage points from 1980 to 2012, while the share reporting Hispanic ancestry tripled.

Fact 2: Millennials have been shaped by technology.

The past few decades have witnessed astounding advances in technology and computing. Since personal computers were introduced to schools in the late 1970s, technology companies have innovated at startling speed, often rolling out a groundbreaking new platform or computer model every year. Because much of this period of innovation coincided with Millennials’ childhoods, it has shaped the ways that Millennials interact with technology and seems to have affected their expectations for creativity and innovation in their own work lives.

Millennials are more connected to technology than previous generations and a quarter of Millennials believe that their relationship to technology is what makes their generation unique. While all generations have experienced technological advances, the sheer amount of computational power and access to information that Millennials have had at their fingertips since grade-school is unparalleled. Computational processing power has roughly doubled every 2 years, and storage prices continue to drop. In 1980, IBM’s first gigabyte hard drive weighed 550 pounds and cost $40,000. Today, consumers have access to 3 terabyte hard drives — 3000 times the size — that weigh under 3 pounds and cost around $100. Under these trends, Millennials have come of age in a world in which the frontiers of technology have appeared unlimited.

At the same time, the costs of creating and distributing all kinds of digital content – from books to music to software – have fallen dramatically. This creates opportunities for this generation to be pioneers in production, as well as consumption, of technology. One study found that more than half of the Millennials surveyed expressed interest in starting a business. And although several Millennials became well-known entrepreneurs in their 20s, this generation is just beginning to reach the peak age for entrepreneurship, which generally occurs in one’s 40s or early 50s.

In addition to creating opportunities for entrepreneurship, advances in computer processing power, along with widespread access to cell phones and the Internet, have changed how Millennials communicate and interact with one another. Millennials use social media more frequently and are even more likely to sleep near their cell phone.

Three-quarters of Millennials have an account on a social networking site, compared with only half of Generation Xers and less than a third of the Baby Boomers. The impacts of these practices have extended beyond Millennials’ peers to their families. For instance, the Wall Street Journal reported that this is the first generation to also have tech savvy parents, and that some Millennials use texting or online chat to have running conversations with their parents throughout their day.

Fact 3: Millennials value community, family, and creativity in their work.

Millennials are not just virtually connected via social networks; they value the role that they play in their communities. For instance, high school seniors today are more likely than previous generations to state that making a contribution to society is very important to them and that they want to be leaders in their communities. This community-mindedness also includes a strong connection to family.

Millennials have close relationships with their parents, and as high school students, roughly half say that it is important to them to live close to their friends and family, compared with 29 percent of Baby Boomers and 40 percent of Generation Xers.

A 1997 Gallup survey found that 9 in 10 children (a population comprised entirely of Millennials that year) reported high levels of closeness with their parents and were personally happy with that relationship. Their tight relationship with their parents extends to work, where some companies report establishing relationships with parents of their Millennial employees. The Millennials’ close relationships with their parents might be related to the greater time they spent with their parents growing up.

Ramey and Ramey (2010) show that these increases have been particularly pronounced among college-educated parents, with college-educated mothers increasing their childcare time since the mid-1990s by over 9 hours per week, while less educated mothers increased their childcare time by only over 4 hours per week.

When it comes to work, Millennials are mostly similar to previous generations: they want to be successful, and they want the type of prosperity that means that their children will be better off. They are somewhat more likely than previous generations to report that they consider creativity to be a very important job feature. Perhaps this is no surprise for a highly-connected generation for whom technology was a key part of their upbringing. On the other hand, they are less likely to report that having an interesting job, or one where they can see results or have advancement opportunities, is very important.

 

While many Millennials report that earnings are very important to them in a job, breaking the data down by gender reveals that this change is driven primarily by young women. Each cohort of young women is more likely than the last to name earnings as a key job feature, while the importance of earnings has been stable for men. The result is that Millennial women have aspirations that are similar to their male peers.

In sum, quality of life appears to be a focus of this generation: Millennials value staying close to family and friends, having free time for recreation, and working in creative jobs. However, they also want to make a positive social impact on their own children and communities, as well as on society as a whole.

Fact 4: Millennials have invested in human capital more than previous generations.

More Millennials have a college degree than any other generation of young adults. In 2013, 47 percent of 25 to 34 year-olds received a postsecondary degree (associates, bachelor’s, or graduate degree) and an additional 18 percent had completed some postsecondary education, as Figure 6 shows. Also, because the rate of young workers with some post-secondary education but no degree has been flat while the share with a degree has risen, more students are completing the degrees they start after high school.

 

Increasing college enrollment is in part a response to decades of rising returns to education for workers and heightened income inequality between the college-educated and the less-educated. Millennials’ commitment to higher education is therefore a rational response to a labor market that confers large rewards on more educated workers. Moreover, during recessions, young people tend to enroll in school in greater numbers and also tend to stay in school longer. This cyclical pattern reflects both a lower opportunity cost of schooling, as well as a stronger incentive to make one’s skills competitive in a tough job market.

Millennials are also more likely to attend graduate school than previous generations. Among 18 to 34 year-olds, college enrollment stood at 19 percent in 2010, up from 15 percent in 1995. Graduate school enrollment for the same age group has increased at an even faster rate, jumping from 2.8 percent in 1995 to 3.8 percent in 2010 – a 35 percent increase.

With so many Millennials enrolling in college, there has been an unprecedented expansion of higher education to lower-income and underrepresented minority students. Figure 7 shows that enrollment of all students in degree-granting institutions has increased over time, but more recent gains have been greatest among black and Hispanic students. Since 1995, enrollment for blacks ages 18 to 24 increased 9 percentage points and enrollment for Hispanics ages 18 to 24 increased 17 percentage points. These represent larger increases, in percentage terms, for blacks and Hispanics than for whites. Research has also found that enrollment of students from low-income families is higher among Millennials than previous generations.

Fact 5: College-going Millennials are more likely to study social science and applied fields.

Millennials are more likely to study social science or applied fields — like communications, criminal justice, and library science — that do not fit into traditional liberal arts curricula, but correspond more directly to specific careers (Figure 8).

 

There has also been a significant decline in the share of students majoring in education since Baby Boomers were in college, as shown in Figure 8. This decrease is mostly explained by a sharp move away from education degrees among female college students. About 35 percent of women graduating from college in the early 1970s earned a degree in an education-related field, but only about 12 percent did in 2011. Business degrees have become more popular among women over the same period, increasing from 9 percent of the class of 1970 to 16 percent of the class of 2011, after peaking in the mid-1980s for both men and women.

Millennials are also somewhat less likely than previous generations to major in fields like business and health (which includes pre-med and nursing). The share of Millennials studying STEM fields is slightly lower than that of past generations; however, the absolute number of majors in these fields has increased over time as college enrollment has expanded, just not as fast as the number of students in other majors.

Perhaps surprisingly for a technologically-connected generation, the share of Millennials choosing computer and information science majors has fallen over time, and this decline has been most pronounced among women. In 1987, 2.9 percent of women graduating with a bachelor’s degree received a degree in computer and information science, and women comprised 36 percent of all computer science graduates. In contrast, in the class of 2011, only 1.1 percent of women graduated with computer science degrees, and women comprised only 18 percent of all computer science graduates. Over the same period, the share of men graduating with such degrees fell only slightly, from 5.7 percent to 5.4 percent. This trend in computer science stands in stark contrast with other highly- compensated fields, such as medicine, dentistry, and law, where women’s participation has increased over this period.

Fact 6: As college enrollments grow, more students rely on loans to pay for post-secondary education.

Total student outstanding loan debt surpassed $1 trillion by the end of the second quarter of 2014, making it the second largest category of household debt. In part, this increase in the aggregate level of outstanding student debt is due to greater enrollment among Millennials and to the changing composition of students, including a larger share of students from lower-income families who need to take out more loans, as discussed in Fact 4.

Other contributing factors include: rising tuition as state governments have cut funding; parents’ impaired ability to use the equity in their homes to offset some portion of their children’s college costs; and the fact that students are taking longer to repay their loans.

Consistent with these factors, average real per borrower debt increased from $24,000 in 2004 to $30,000 in 2012. Since 2012, total originations have fallen, and since 2010, originations per borrower have fallen; however, the fraction of students borrowing remains high from a longer-term perspective. Around half of students borrowed student loans during the 2013-14 school year, up from around 30 percent in the mid-1990s.

 

With the gap in earnings between college- and high school-educated workers both large and growing, college-educated Millennials are more likely to earn higher wages and be employed than those without a college degree. A four-year degree yields approximately $570,000 more in lifetime earnings than a high school diploma alone, while a two-year degree yields $170,000 more. Importantly, research finds that the earnings gains from attending college are broad-based, as both lower-skilled students attending basic college programs and higher-skilled students attending elite colleges stand to benefit.

However, one concern with rising average student debt levels is that a non-trivial minority of borrowers might face financial difficulties managing and paying down their debt. Recent increases in the prevalence of delinquent student loans point to some of the challenges that borrowers face. In addition, the defaults appear to be concentrated among borrowers who do not graduate from a four- year institution and those attending for-profit institutions. Since borrowers may also receive lower returns to their education from such institutions, the burden of paying back their loans may present an even greater financial challenge.

Fact 7: Millennials are more likely to focus exclusively on studies instead of combining school and work.

With college enrollments at historic highs there has been a corresponding decline in labor market participation among 16 to 24 year-olds. As Figure 11 shows, about 90 percent of young adults are either enrolled in school or participating in the labor market.

This share has been flat since the late 1980s, while labor market participation itself has been declining for this group since the late 1970s. Much of the decline in participation has occurred among students, as students have become more likely to focus on school alone rather than combining school and work.

 

Millennials, in particular, have been less likely to work while enrolled in high school. Since 2000, labor force participation rates among high school and college students have fallen more sharply than those who are not enrolled, as shown in Figure 12.The result is that more students are focused exclusively on their studies during school years.

On the other hand, labor force participation has been relatively stable for 18 to 24 year-olds who are not in school. Although participation has also declined somewhat for very young non-enrolled individuals ages 16 to 18, this group is very small and shrinking over time as fewer students are dropping out of high school.

 

Focusing exclusively on school enables students to invest more time building skills that will be highly rewarded in the labor market later on. Moreover, research suggests that the returns to working during the school year, particularly while in high school, have declined over time. These trends in participation make economic sense.

As Millennials enter the labor market after finishing school, these investments can also start to pay off for the economy as a whole.

Fact 8: As a result of the Affordable Care Act, Millennials are much more likely to have health insurance coverage during their young adult years.

As a result of the Affordable Care Act, Millennials have much better health insurance options during their young adult years than past generations. Since September 2010, young adults have generally been eligible to remain on a parent’s health insurance policy until they turn 26. Previously, young adults frequently lost access to a parent’s plan when they turned 19 or graduated from college. In addition, as of the beginning of 2014, many young adults newly qualify for tax credits to purchase health insurance coverage through the Health Insurance Marketplaces or Medicaid in States that have accepted Federal funding to expand their Medicaid programs.

From the time the Affordable Care Act’s dependent coverage provision took effect in 2010 through the first quarter of 2014, the uninsurance rate among individuals ages 19 to 25 fell by 13.2 percentage points, a 40 percent decline. In the first quarter of 2014, the share of young adults without health insurance coverage was 20.9 percent, the lowest young adult uninsured rate recorded since the National Health Interview Survey began using its current design in 1997.

Other analyses using private survey data show that overall insurance coverage continued to expand during the second quarter of 2014, so these estimated gains are likely to grow in the coming months. Moreover, analysts predict that coverage will continue to expand in the years ahead.

Figure 13 Uninsurance Rate Among 19 to 25 Year-Olds

Having health insurance has been shown to improve access to health care, health outcomes, and financial security. Research focused on the Affordable Care Act’s dependent coverage expansion has found evidence for similar effects. Researchers have found that in tandem with the sharp increase in insurance coverage following the law’s enactment, young adults became less likely to delay or entirely forgo care due to cost and markedly less likely to face large out-of-pocket medical expenditures. Several studies have also concluded that these newly-insured young adults are more likely receive several types of inpatient and outpatient care, while another found that they are more likely to report being in excellent health.

Greater access to health insurance coverage outside the workplace during young adulthood may also generate important labor market benefits by allowing workers to obtain additional schooling or choose the jobs that best match their career goals. Research examining the Affordable Care Act’s dependent coverage expansion has documented increased school enrollment among young adults, and earlier research examining similar state laws found significant gains in ultimate educational attainment as well as higher wages later in life. Other research has similarly found that the Affordable Care Act’s dependent coverage expansion reduced employment lock and increased labor market flexibility, allowing workers to change jobs without the fear of losing health insurance.

Millennials are also poised to benefit from another important development in our nation’s health care system: the striking slowdown in the growth of health care costs. From the time the oldest Millennials were born through when they turned age 25 in 2005, private employers’ costs for health benefits grew at an average annual rate of 5.4 percent, adjusted for inflation.

But in recent years, the growth of real health benefit costs has fallen dramatically, averaging just 1.1 percent over the last two years, about 80 percent lower than the prior average (see Figure 14). Economic theory and empirical evidence demonstrate that higher benefit costs are ultimately borne by workers in the form of lower wages and salaries. As a result, if the dramatic slowdown in the growth of health benefit costs persists in the years ahead, it will help drive faster growth in wages and salaries for Millennials relative to their predecessors.

Figure 14 Growth in Employer Health Benefit Costs, 1981-2014

 

Fact 9: Millennials will contend with the effects of starting their careers during a historic downturn for years to come.

Millennials are currently about a third of the labor force and, as a generation, they have faced substantial challenges in entering the workforce during the most pronounced downturn since the Great Recession. The overall unemployment rate for young workers between ages 18 to 34 peaked at over 13 percent in 2010, on a seasonally-adjusted basis. Since then it has come down 4.7 percentage points to 8.6 percent in September 2014. While it remains elevated, the labor market recovery and decline in the unemployment rate has recently been faster than any time since the early 1980s.

Between June 2013 and June 2014, the unemployment rate of Millennials declined by 1.8 percentage points, the largest reduction in unemployment for this age group also since the early-1980s. During this period of rapid decline in the unemployment rate, the number of employed Millennials increased by 990,000, a noticeable acceleration from the 786,000 Millennials that found work during the year- earlier period.

Examining the twelve month averages of various measures of unemployment, allows us to look at how much different indicators of unemployment have recovered for this age group compared to their prerecession averages. The 12-month average of the unemployment rate as of August 2014 for Millennials is roughly three-quarters of the way back to its pre-recession average, broadly in line with the extent of recovery for other groups.[39] The recent improvement in labor market conditions for Millennials broadly mirrors that of the broader population, as do the outstanding challenges.

The fraction of Millennials unemployed for less than 26 weeks has recovered more than the fraction of long-term unemployed, just as is the case for the population as a whole. Long-term unemployment remains a challenge for Millennials and for the country in general, as we work to get more of the long- term unemployed back into employment.

Figure 15 Labor Market Indicators in the Recession for Millennials, All Data as of August 2014

Other indicators tell a similar story — while Millennials have made a substantial labor market recovery, that recovery is not complete and is slightly lagging that of other age groups, consistent with prior recessions. Broader measures of joblessness also indicate that the recovery is making progress. For example, measures of unemployment that account for people who are discouraged from looking for work or are only available for work under certain conditions were roughly 70 percent back as of the 12-month average ending in August 2014 to their pre-recession average, while those that include people who are working part-time, but would prefer full-time hours were 55 percent recovered.

The unemployment rate has recovered similarly among Millennials regardless of education, however, this similarity masks big differences in the levels of unemployment by education. The unemployment rate of 25-34 year old Millennials with a college degree was 3.7 percent in 2013, compared to 13.5 percent among those less than a high school education.

The pace of the recovery for younger age groups is in line with the pattern we typically see after a recession, as shown in Figure 16 yet more work remains to be done to ensure a full recovery. Younger workers have less experience and more tenuous connections to employers than older workers, so they are often laid off in greater numbers and have to compete against more experienced workers for new jobs once recovery begins. They therefore tend to be among the last groups to recover fully from a recession.

Figure 16 Unemployment Rate of Workers Ages 16 to 24 During Recoveries

 

The Great Recession likely will have important implications for Millennials’ future labor force outcomes, since research finds that macroeconomic conditions in childhood and young adulthood are important determinants of future earnings and financial behavior. Early career economic conditions have large and lasting impacts on lifetime wages, particularly for college graduates.

Research shows that entering the labor market during a recession can result in substantial earnings losses that persist for more than a decade, with negative effects lasting longer for college graduates. Workers who start their careers in a recession earn 2.5 to 9 percent less per year than those who do not for at least 15 years after starting a career. Research further suggests that one reason for these lower earnings is that new entrants take jobs that are a worse fit for them when they start their careers in a recession.

However, research also shows that perhaps the single most important determinant of a person’s income is their level of education. And as the most educated generation in history, this will tend to boost earnings for Millennials over the course of their lifetimes — and help to offset any longer-term harms from the Great Recession.

Millennials themselves remain largely optimistic about their ability to move up socioeconomically, with over half agreeing that people like them have a good chance of improving their standard of living. While this number has been trending down in the wake of recent economic turmoil, following a more long-standing decline that began in 2000 (Figure 17), Millennials, like all young people, are more optimistic than older respondents.

Figure 17 The Way Things are in America, People Like Me and My Family Have a Good Chance of Improving Our Standard of Living: Do You Agree or Disagree?

 

Overall, these economic conditions may affect adult financial behavior and beliefs about success and the role of institutions in society. Individuals who experienced the Great Depression invested less and pursued more conservative investing strategies throughout their lives. More recent economic turmoil has bigger impacts on behavior and that these impacts are most pronounced for younger savers.

This suggests that the Great Recession will impact early savings and investment behavior among Millennials, but at this point, it is still too soon to know how large these impacts will be.

Fact 10: Investments in human capital are likely to have a substantial payoff for Millennials.

Recent college graduates continue to out-earn individuals with only a high school diploma, a gap that has been increasing over time. The college premium, the difference between median earnings for college versus high school graduates, increased from 60 percent in 2004 to roughly 70 percent in 2013. Holding a college degree (associates or bachelor’s) results in a much lower probability of having earnings in the lowest income tax bracket — 16 to 28 percent for college degree holders versus 37 to 41 percent for those with no college degree (Figure 18). Bachelor’s degree holders are also 6 times more likely to have earnings in the top income tax bracket than those with only a high school degree.

In addition to earning higher wages on average, individuals with a college degree are less likely to be unemployed. As of September 2014, the unemployment rate for those with a bachelor’s degree is around 3 percent, compared with over 5 percent for high school graduates.

Figure 18
Earnings Distribution of Workers Ages 25 to 34 in 2013

Returns to education are 5 to 10 percent per year of schooling, with most estimates in the 7 to 10 percent range. The gains from a college education are high, both for lower-skilled students attending basic college programs and for stronger students attending selective colleges. Median real hourly wages for 21 to 25 year-old college graduates are even higher than median real hourly wages for 26 to 34 year-old non-college graduates, who have had more time in the labor market. College therefore remains a strong investment for most students — and will raise income levels for Millennials for decades to come well above where they would have been without those investments.

While education remains a good investment, Millennials still face challenges associated with several decades of slow wage growth – compounded by the Great Recession. As a result Millennials have seen slower wage growth than earlier generations of young adults. The typical employed college graduate who entered the market in the mid- to late-1990s saw his or her wages increase by around 50 percent between the ages of 23 and 28. This indicator of wage growth for young workers declined to 24 percent in 2001 and 2002, then recovered somewhat to exceed 30 percent before falling again to under 25 percent for college graduates who entered the labor market at the start of the Great Recession.

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