So a recent post about why Generation Y is so miserable caused a bit of a fuss recently, and a response can be found here. I’m not going to try and endorse or deny the stuff about entitlement. For one thing I am of Generation Y myself, so if I bite on that bait, I will only be providing evidence for the other comment about Generation Y that they don’t respond well to negative feedback. My main point is simply as follows: The trends identified in the “waitbutwhy” article are actually rational responses to a changing work environment. In particular pensions used to provide incentives which dramatically increased the financial value of careers which would give rewards only after many years’ hard work. I don’t want to get drawn into too much of the institutional detail here, if for no other reason than that those details differ on different sides of the Atlantic, so I’m afraid it is going to be pretty broadbrush at this point..
While institutional details differ, the general pattern is similar. In the immediate post-war years, with greater faith in what the state could achieve, many Western countries set up “pay as you go” pension systems, where each generation would pay the pensions (and other retirement benefits) of the one that preceded it through the tax system. A bit of nominal ring-fencing goes on, but ring-fencing like that is normally just window dressing.
There is nothing wrong in principle with a pay as you go system. Indeed, it can be an important way to ensure that the generations alive and approaching retirement when the pension system is set up do not miss out. However when there is a baby boom (as there was in the immediate post war years), the system can be put under a great deal of strain. When the baby boomers reach working age, there are a lot of them to spread the burden of supporting the older generations. When they retire, there will be a lot of them who need to be supported by the subsequent generations.
But there has been another trend, which means that each retired baby boomer will be an even larger burden for subsequent generations than the pensioners they supported in their working life. The baby boomers will live much longer, their lives being preserved by expensive medical treatments (courtesy of the tax payer again), but retire at virtually the same age. In the UK, the age at which people most commonly die has increased by 10 years for men and by 5 years for women since 1980. This means that the typical man enjoys twice as many retirement years today as the average baby boomer did. There is nothing wrong with extra longevity, but it does mean that there are more pensioners whose pensions and other benefits need to be paid for by a relatively smaller population of workers. That means a larger burden for each worker to bear.
Most of the solutions to this problem amount to moving the stable door from wide open to ajar once the entire team of horses have got out into the wild and are well on the way to producing more horses. Broadly speaking, the plan among those countries that are planning to do anything is to slightly raise the retirement age long after the baby boomers have retired. As with any “solution” to a problem which fails to go far enough, this simply means that more drastic actions will be required later, probably just as Generation Y is nearing retirement age. That age will probably be substantially raised, and the retirement benefits they will enjoy have already been drastically reduced compared to those that will be enjoyed by the baby boomer generation.
However this offers some insight into one of the differences highlighted between generation Y and their parents. Their parents expected to work until they were 65 and then enjoy a good 20 years of retirement. In those circumstances it is rational to look for a career purely on financial criteria. Generation Y’s parents will also, for the most part, benefit from pension schemes based on their final salaries. This dramatically increases the financial benefits of a career which sees very large salaries right at the end, because that has a huge effect on pension income.
Generation Y is probably expecting to live to about 90 and retire at 86 (yes I am exaggerating, but the point is they will work longer and enjoy fewer years of retirement). The closure of most final salary pension schemes also means that sudden salary rises at the end of their careers will not have such a dramatic effect on their lifetime incomes as it did for their parents.
All this adds up to two things:
- Rationally the early financial rewards to their careers are more important to Generation Y than they were to their parents; and
- Rationally their careers will be a much bigger part of their lives and so Generation Y should be looking for a career where they can follow their passion rather than one that merely provides a living.