The recession and its aftermath have been much harder on the young than the old. The employment rate of those in their 20s has fallen, while employment among older individuals has not; and real pay among young workers has fallen much faster than among older workers. As a result, young adults’ real incomes have fallen much more than any other age-group.

These are among the findings of a new report by IFS researchers, funded by the Joseph Rowntree Foundation and published today. The research uses data on household incomes from the government’s Households Below Average Income series, recently made available up to and including 2012–13, in conjunction with the Labour Force Survey.

Key findings on young adults and the recession include:

  • Between 2007–08 and 2012–13, real (RPI-adjusted) median household income fell by 13% among 22-30 year-olds. Among 31-59 year-olds, the fall was only 7%, and median income did not fall at all for those aged 60 and above.
  • This was driven by changes in earnings and employment levels. The employment rate for 22 to 30-year-olds fell by 4 percentage points (ppt), while remaining unchanged for 31 to 59-year-olds. Among those in work, real median pay (before tax) fell by 15% among 22-30 year-olds, and by 6% for 31 to 59-year-olds.
  • Just over one quarter of adults aged 22-30 live with their parents. This has cushioned the impact of the recession on their household incomes: comparing 2005–06 to 2007–08 with 2010–11 to 2012–13, median household income for those living with parents fell by 8%; without their parents’ incomes, the fall would have been 17%.
  • Young adults have actually seen the sharpest falls in housing costs. Young home-owners have benefited most from lower mortgage interest rates, because they have the most mortgage debt; and recent real-terms falls in private sector rents helped young adults the most, because they are the more likely to rent from a private (rather than social) landlord.
  • But the rapid decline in home-ownership across generations continues. The homeownership rate for 25 year-olds has halved in 20 years: 21% of those born in the mid 1980s owned a home at this age, compared with 34% of the mid-1970s cohort and 45% of the mid-1960s cohort.

Looking across the population as a whole:

  • The official measure shows real (RPI-adjusted) median household income broadly stable between 2011–12 and 2012–13 (the latest year of data), but still 5.8% below its 2009–10 peak. If instead we use the improved RPIJ measure of inflation the picture is slightly less bleak, with real median income 3.6% lower than in 2009–10.
  • Real income falls since the start of the recession would have been larger were it not for lower housing costs. Between 2007–08 and 2012–13, average housing costs fell by nearly 20% relative to other prices, pushing down inflation. This was driven by large falls in interest rates: real housing costs for mortgage-paying owner-occupiers fell by 37% – and from 18% to 13% as a fraction of their income.
  • The recession has had differing impacts across the UK. Comparing 2007–08 to 2009–10 with 2010–11 to 2012–13, real falls in median income range from 8% in Northern Ireland to 2% in the East Midlands. After deducting housing costs from income, London saw the joint-biggest falls (with Northern Ireland). There is no clear relationship across the country between pre-crisis income levels and income changes since the crisis (and in particular no clear North-South divide).

Incomes have changed differently across the population:

  • Income inequality remained significantly lower than before the recession, though barely changed in 2012–13. The widely-used Gini coefficient measure of inequality was no higher in 2012–13 than in 1990.
  • Median income for non-working households (including pensioners) was 60% of median income for working households in 2007–08, but 67% by 2012–13. This is because workers’ pay fell while benefit entitlements were relatively stable. Two-fifths of the fall in inequality over this period can be attributed to a closing of the gap between households with someone in work and the rest of the population.