It’s popular to group millennials together as one cohesive group and compare like-for-like. But they are a diverse bunch that share as many differences as they do similarities. Where comparisons are useful is in determining how this generation will drive future demand. After all, their contribution is largely baked into the demographic cake.
We find that while US millennials will continue to enjoy real income gains, the liabilities they’re on the hook for, combined with the damage inflicted upon them by the financial crisis, mean their contribution to demand won’t match earlier generations. That obviously has negative implications for growth. Chinese millennials share many of the demographic stresses of their US peers, but they will see faster real income gains and shouldn’t have to shoulder the same level of unfunded liabilities. This reinforces the reality that China will continue to drive an ever-increasing share of global demand growth. And there isn’t much the US can do about that.
As demographic trends become a more forceful influence on the global economy, it’s a worthwhile exercise to examine how this will impact demand and how this marries with population aging. Both the US and China have reached a point where the share of the population beyond working age is surging (Figure 1).
In the US this is due to the increasing longevity of the boomer generation. In China these forces are amplified by the impact of the one child policy. How these pressures balance with demand from the upcoming millennial generation, which is the group that will shoulder a considerable amount of this burden, will vary considerably.
While the boomers — born between 1945 and 1965 — exit the working stage, millennials (born 1981 to 1996) are now starting to enter the peak consumption phase of life (35-55 years old), an age when people traditionally begun to settle down, buy a home and raise a family. As a group, in both China and the US (and other DMs), they represent a much smaller wedge of the total population than earlier generations, most notably the boomers, but also the Gen Xers that arrived between 1966 and 1980 (Figure 2). But their position means they remain the biggest influence in determining the domestic and global economy’s underlying rate of demand growth.
This is where things become slightly more complex, as to determine the transformative impact of each country’s millennial cohort, one also needs to factor changes in consumption elsewhere in the demographic profile. While the aging boomer bracket makes the classical demographic pyramid more top heavy — reflecting both the size of this cohort and the progress (if you can call it that) made in longevity — the costs of these shifts vary depending on a number of variables. These include location (intra-country), the availability and adequacy of social safety nets and the level of savings, as well as the more obvious income growth trends.
Many of these should net off to an extent, but the residual balances will determine how much burden sharing — in the form of intra-generational transfers from millennial workers to boomers in their dotage — need to be made. Where there are large unfunded liabilities, particularly in the case of health and pension provisions, the implications for millennial income and consumption could be significant.