Budget pressure to be passed to the next generation

Professor Roger Wilkins, Deputy Director of Research with the HILDA report, explains why pressure on the family budget will show up in the next  generation


Introduction: Budget pressure to be passed to the next generation – HILDA Survey

Ross Greenwood: First up on Work, Life, Money, I want to take you to what is I think one of the most important surveys that has come out this year. Now, this particular survey is The Household Income and Labour Dynamics in Australia Survey. It’s known better as the HILDA Survey.

It caused headlines during the week as a result of its findings, that basically younger people are finding it much tougher to get into housing as compared with say, 10 years, 15 years ago. Also, the fact that there is a closing up of the gap between men and women when it comes to their salaries. But this is a comprehensive survey that’s basically tracked the economic and social situation of more than 17,000 people in Australia since 2001.

Now, this particular survey is really put together by the Melbourne Institute and it’s actually funded strangely enough by the Department of Social Services. The report’s author is Professor Roger Wilkins from the Melbourne Institute who is on the line right now. Many thanks for your time, Roger.

Interview: Professor Roger Wilkins, Author, Melbourne Institute

Professor Roger Wilkins: You’re welcome.

Ross Greenwood: Just explain, in regards to the big trends that have come out of this report this year, I’ve mentioned a couple of them, but it is so comprehensive, it takes three or four readings of the complete report to really get your head around some of the dynamics of the changing in Australian families right now.

Professor Roger Wilkins: Yes. It is a really rich data source because not only is it done every year on a wide variety of topics but we’re following the same people over time so we can really sort of see where people come from and where they go to. It’s sometimes really hard to know what to focus on but certainly, in terms of the broad sort of economic picture, I think I can’t get away from the conclusion that the ‘boom’ is well and truly behind us.

Household incomes haven’t been growing since 2012 and in fact, on average, they’re slightly lower. Employment is staying strong which we are seeing a rise in underemployment and a growth in the part-time share of employment. And as you mentioned, we’ve seen a rather concerning trend decline in home ownership amongst people aged under 40. We had 36% of adults under 40 who are homeowners in 2002, it’s now down to 25% and still heading south.

Ross Greenwood: But that causes some of these social trends that you are trying to identify. Kids staying at home for longer, parents working for longer because in many cases they might have mortgages as they’re getting into their life years, you’ve got situations where quite clearly there are pressures on younger people much earlier in life which I think always is contributed to by the HECS debt, say, for example, or their HELP debt, plus also the fact that housing costs become very expensive, they end up staying at home. So these social problems that come as a result of these pressures, these income pressures inside households.

Professor Roger Wilkins: Yes. Part of the story with young people staying in the parental home longer, I think it’s partly a good story underpinning that but mostly it’s a bad story. The good story is we’ve got more kids than ever going on to University. Of course, that means we’ve got more kids with HECS debt but that still means that we’re generating a more skilled workforce and we know that labor market outcomes and all sorts of other outcomes, in the long run, will be better for these kids for going to Uni.

But I think the bigger driver is what’s going on particularly in the housing market and also in the labor market. Housing cost, particularly if you want to buy in the housing market, have really increased nonstop since the turn of the century with very little pause and at the same time, we’re seeing that young people are having a harder time getting into full-time jobs in their early 20s. I think those negative factors are probably more important in driving this increase in kids staying with their parents.

Ross Greenwood: One of the things that I spotted there was obviously we’ve talked often about the casualization of the workplace, in other words, they work around the place but it’s part time work. So there’s not the hours of people require to pay the mortgage off or afford to buy a house, whatever it might be.

But there’s a second factor about this also that I noted, there is an increase in the number of people who have more than one job. So then again are the talks of pressures in the housing market to afford a bigger mortgage or indeed on the other side of it, to be able to manage because there are simply not enough hours around the place.

Professor Roger Wilkins: I’ve certainly seen a rise in underemployment where people are working part-time but actually would like more hours and often full-time work, and as you mentioned, we’ve seen a growth in the number of people who are using multiple part-time jobs as a route to getting full-time employment. So we know where part-time jobs combined, they’re working 35 or more hours and that’s I think a natural consequence of being unable to get a full-time job in this labor market.

Ross Greenwood: Just throw your mind forward, five years, ten years or whatever it might be. The consequence of the underemployment, the consequence of the squeeze-on wages, and the problems that are coming to the housing market. Where is, not necessarily a resolution, but where does that lead Australia in terms of its direction, its social structure into the future?

Professor Roger Wilkins: We wouldn’t want to, I think, get too gloomy about it, our future. We got, I think, used to very strong income and employment growth out from the early to mid-1990s up until with GFC and even a little bit beyond. That’s over. But, that said, our income levels are still quite high by comparison with other developed countries. Things are certainly getting tougher but, as I mentioned, we still got very good rates of overall employment. I wouldn’t be too pessimistic. But, certainly, there are particular concerns about the younger people coming through because we are seeing a growing wealth divide between older and younger generations. And, as I mentioned, it does seem that the labor market is getting relatively tougher for younger people.

Ross Greenwood: It’s interesting, isn’t it, Roger? Because if you throw your mind forward, those parents in those homes where they’ve got established equity where kids might be living in their home. Of course, the battle of the generations is that the older people, the parents, ultimately have long healthy lives themselves and they use the equity of their home to survive and have a reasonable standard of living in their retirement, the younger people, in many ways, are relying on the equity in that home to either get themselves into their homes or to pay down their debts they’ve got to take on to get into their houses in the first place. It is almost like a bit of a battle of the generations, even though the family members might love each other.

Professor Roger Wilkins: [laughs] It is. It is, indeed. I think some people mentioned that once all the kids today eventually inherit their parents’ wealth– that I guess depends on a few things. One is that the parents don’t actually end up spending the inheritance. But, I guess, the other consideration here is that if we are living longer, they may not get that wealth until they themselves are already retired. It might be coming a bit late.

I think there’s a real concern that we’re going to see lower rates of home ownership amongst current young people as they hit retirement and that’s going to have implications for their well-being in retirement because most of the retirees at the moment the big contributor to their living standards. But, also, I think we’re facing a prospect of many more people reaching retirement with still substantial mortgage debts.

Because even if the current young people do eventually get into the housing market, they’ll be doing it at much older ages than it traditionally being the case. I think that raises the prospect of people not paying off their homes by the time they retire. I think there’s a lot of causes to concern over the longer term implications of what we’re seeing.

Ross Greenwood: Just a final one, I do know that there has been a bit of politics pointed at this survey and in regards to questions even from Bill Shorten suggesting that inequality in Australia, which quite clearly is a plank of his political mantra right now, is at its highest levels for some 75 years now. Certainly, this survey hasn’t been going for 75 years so that’s a number that’s been thrown out of there. In regards to inequality in Australia, the haves versus the have-nots, how would you argue it based on the survey results you’ve seen?

Professor Roger Wilkins: Yes. Conventionally, when we’re talking about economic inequality, we look at incomes and measures of inequality of household incomes. The HILDA surveys showing basically no change in 2001 in the overall level of inequality measured that way. Bill Shorten is essentially relying on tax record data and in particular, a pre-tax personal income of the top 1% and their share of total income. That has risen since the 1950s.

But that’s not really a good measure of overall quality. It’s pre-tax 50 years ago. We had a much less progressive tax system and it’s personal income, it’s not household income. Then, the other thing you’d want to, I think, factor in here is that in 1950 there was no Medicare. There was a lot smaller role for government. And much of what the government does in the health system, the education system benefits lower income people proportionally more than higher income people. When you take all those factors into account, I think I’d push back a bit against this argument that we have record levels of inequality in the post-war era. I think that that’s going too far.

Ross Greenwood: Professor Roger Wilkins from the Melbourne Institute, the author of The Household Income and Labour Dynamics in Australia survey, the HILDA Survey, that’s come out this week. Roger, I appreciate your time here on the program.

Professor Roger Wilkins: Thank you.

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