Fall 2019 Journal: The Generational Squeeze – Young Californians’ Financial Outlook in the Wake of the Great Recession

October 17, 2019 bppj California, Economics, Uncategorized 0

This article is the fifth article featured in our Fall 2019 journal. For the complete journal, please see the “Journal Archive” tab above.

by Erin Coghlan, PhD and James Hawkins, MPP
Berkeley Institute for the Future of Young Americans

Edited by: Nick Draper and Annelise Osterberg

This article examines how young people’s economic outlook has fared in California since the onset of the Great Recession. We draw on the American Community Survey and data from the National Low Income Housing Coalition to show how key economic indicators have changed from 2007 to 2016 for different age groups in California, with an emphasis on those aged 18 to 29. While we find that more young people have bachelor’s degrees and are more likely to have health insurance than in 2007, we also find that young Californians today are worse off on other indicators such as employment, income, and affordable housing. Moreover, income varies widely for young adults by metropolitan region and race/ethnicity. Given these findings, we discuss policy solutions to offset generational inequity, recognizing that many young adults in California started their life paths during turbulent economic times and face an uncertain economic future.

California During the Great Recession

In December 2007, the U.S. economy entered one of the worst periods of economic decline in the lifetimes of most Americans: Between the end of 2007 and June 2009, real gross domestic product (GDP) fell 4.3 percentage points resulting in billions of dollars of lost potential output. [1] At the peak of the crisis the U.S. lost nearly 9 million jobs. [2] California, the nation’s largest sub-economy, was hit hard on nearly every major economic indicator. [3] In the labor market alone, California lost over a million jobs during the economic decline and unemployment reached well above the national average. [4] Since the recession, the California and U.S. economies have made strides toward labor market stability, but it took over six years to recover the number of jobs lost due to the recession, resulting in one of the longest job recovery periods in U.S. history. [5]

The recession hit California’s economy particularly hard, but economic outcomes for different demographics varied considerably. For example, researchers at the California Budget Project (now the California Budget and Policy Center) found that the economic downturn reduced employment for single mothers more so than it did for married parents, and also increased poverty among female-headed families with children. This was likely due to sharp budget cuts in California’s social programs for single mothers and their children. [6] The Public Policy Institute of California (PPIC) found that income for families at all income levels fell between 2007 and 2010, but low-income families experienced the most dramatic losses. [7] Sylvia Allegretto of UC Berkeley’s Center on Wage and Employment Dynamics found that Latinos and African Americans in California had much higher rates of unemployment during the recession than Whites and Asians, with persistent disparities throughout the recovery period. [8] While such studies illustrate stark differences between individuals from different demographics, we do not yet have a clear understanding of how the recession impacted different age groups of Californians.

Research Approach

The primary goal of this article is to describe the economic impact that the Great Recession had on young people in California (18 to 29-year-olds) relative to other age groups. We analyze data from the American Community Survey (ACS) and also draw on data from the National Low Income Housing Coalition to determine how the recession affected young people in the Golden State. We report on common measures important to economic success such as income and employment, as well as measures increasingly salient to young adult’s success in the 21st Century: health insurance, bachelor’s degree attainment, and housing affordability.

This paper is outlined as follows: The first section reviews the main findings, examining trends in college attainment, health insurance, employment and income, and housing by comparing outcomes for young Californians to older age groups. The second section discusses new and existing policy proposals that could potentially improve the economic outlook for young Californians. Lastly, we highlight the state’s forthcoming challenges for younger generations.

Findings

Educational Attainment

To measure educational attainment, we quantify the annual percentage of the California population with a bachelor’s degree or higher. This excludes individuals with associate degrees. Specifically, our measure shows the percentage of a given age range that has attained a bachelor’s degree or higher from 2007 to 2016.

Figure 1: Trends in bachelor degree attainment rates in California, by age (2007-2016)

Source: Authors’ analysis of American Community Survey data for California

As shown in Figure 1, there is an uptick in attainment of bachelor’s degrees among older age groups, with those who were 65 years-old or older experiencing the sharpest gains. Notably, the youngest age group (18 to 24-year-olds) had by far the lowest attainment rates, which is to be expected considering that most people who have attained a four-year college degree still have not received a degree by their 21st birthday. [9] It is difficult to determine from this descriptive data whether the dip in college attainment during the recession and recovery years among 18 to 24-year-olds is due to fewer students enrolling in college or students dropping out of college. A study by researchers at the University of Southern California surveyed nearly 1,500 randomly selected California students aged 18 to 26 who left either a community college or four-year institution during the recession period with intentions of returning. [10] They found that college affordability was one of the top reasons that students stopped attending college during the recession, which is unsurprising given that California raised tuition significantly for state public higher education institutions during this period. [11]

Health Insurance Coverage

Rates of insurance coverage measure the percentage of individuals who have any kind of health care coverage, with a range of plans and varying premiums and copays. This measure of health insurance includes comprehensive plans that cover “basic health care needs.” [12] 

Figure 2: Trends in health insurance coverage in California, by age (2008-2016)

Source: Authors’ analysis of American Community Survey data for California

As shown in Figure 2, the oldest population of Californians (65 or older) experienced very little change over the duration of the recession and recovery period, likely due to their sustained insurance coverage under Medicare. The story for young people is different. The health coverage rate for 30 to 64-year-olds declined before the main elements of President Obama’s Affordable Care Act (ACA) went into effect in 2014. Those who were 25 to 29 years old experienced modest fluctuations before seeing a large uptick in 2014, again, likely due to the ACA. The youngest group, those aged 18 to 24, do not appear to have experienced any losses in health insurance coverage, and actually show the greatest gain of any age group. This age group was likely helped by the provision in the ACA that allowed those 26 and younger to file as dependents on their parents’ private health care plans starting in 2010. [13] This group saw another coverage boost in 2014 with the implementation of the Covered California health insurance marketplaces, which provided subsidized health insurance coverage for low-income families, as well as plans for individuals with pre-existing conditions that might not otherwise be available in the non-employer health insurance market. [14]

Employment and Income

To measure employment, we count the proportion of individuals in the labor force who had a job. While this measure excludes many who exited the labor force due to discouragement in the face of poor economic conditions, it also excludes those who might not be working due to other life events, like attending school. As shown in Figure 3, a clear pattern emerges: The older the person, the more likely they were to have a job during the Great Recession and recovery period. Interestingly, while the oldest age groups tend to cluster closely to one another, the youngest age group (18 to 24-year-olds) had by far the lowest employment rate. As a simple function of their age, young adults have the least amount of average experience in the labor force; therefore, the dramatic drop in youth employment may reflect employers prioritizing more skilled, older employees during layoffs. The recession may have also left less labor demand for entry-level positions, which would have disproportionately impacted the young. [15]

Figure 3: Trends in California employment, by age (2007-2016)

 

Source: Authors’ analysis of American Community Survey data for California

Note: The employment rate measures the proportion of individuals who are in the labor force and in a job. In contrast, the unemployment rate measures the proportion of individuals who are in the labor force (i.e., actively searching for work) but are not working.

In our measure of income, we include all income sources including wages, retirement earnings, self-employment income, and cash payments through the social safety net. This measure excludes any in-kind government transfers and non-monetary fringe benefits that an individual may receive through their work, such as health insurance or transportation benefits.

Figure 4: Trends in median income of California earners, by age (2007-2016)

Source: Authors’ analysis of American Community Survey data for California

Figure 4 shows the median income by age group for earners in California. Every age group except those 65 or older experienced a sharp drop in income at the start of the recession. Notably, all three age groups that experienced decreases still had not recovered by 2016. In other words, on average, young and middle-aged California workers (under age 65) experienced income loss during the recession that was never regained by 2016.

Figure 5. Mean income for young people (ages 18-29) in California metropolitan regions (2007-2016)

Source: Authors’ analysis of American Community Survey data for California

Given that young people are far more likely to experience poverty than older age groups, [16] we also further analyzed income data to see differences in income level for young people by California metropolitan region and race. Figure 5 shows the percentage change in income for 18 to 29-year-olds across different metropolitan areas of California from 2007-2016 (note: we report mean income rather than median income here). For young people living in the Bay Area, incomes grew by 30 percent since the recession began. While this is promising for workers in the Bay Area, in other parts of the state the picture is far from rosy. On average, incomes for young people living in cities like San Diego, Santa Cruz, Sacramento, Santa Rosa, and Napa declined by double digits. In other cities, like San Bernardino and Bakersfield, income declines approached 30 percent. As noted, Figure 5 shows the percentage change in income from 2007 until 2016; the income loss for young Californians across different regions of the state was even greater at the peak of the crisis in 2009-10.

Figure 6. Median income of Californians aged 18-29, by race/ethnicity (2007-2016)

Source: Authors’ analysis of American Community Survey data for California

Considering race and ethnicity further complicates this picture. As shown in Figure 6, the median income in California is on average higher for White young adults, and lower for Black, Asian, and Latino/Hispanic young adults, as well as individuals who do not identify with any of the preceding groups or identify with multiple groups. These disparities persist over time, with a stable gap between the top and lowest earners over the duration of the recession. Notably, in 2016, income inequality among young adults by race/ethnicity remained large. The typical White young adult had about $14,000 in income in 2016, while the median income for young adults in all other groups for the same year ranged from approximately $9,500 to $10,800.

Housing Independence

In this analysis, housing affordability is essentially a measure of housing independence. We do not have access to each person’s individual share of rental income – and measuring the rent burden of each person is complicated in households with two or more adults. In the absence of this data, our analysis compares 30 percent of an individual’s income to data from the National Low Income Housing Coalition covering the fair market housing rates of an average studio apartment in California (we also include fair market rents for the largest metropolitan areas in this analysis). In other words, we compare the individual income resources of each person in our sample to their ability to afford a basic rental unit. We maintain that this method has significant advantages for measuring the state of housing affordability, particularly among young adults, who may be forced into housing arrangements due to resource constraints rather than preferences.

Figure 7: Trends in California housing affordability, by age (2007-2016)

Source: Authors’ analysis of the American Community Survey data and National Low Income Housing Coalition data for California

As shown in Figure 7, after the 2007 market crash, rates of housing affordability dropped for all age groups, with more severe drops for those aged 25 to 29 and 30 to 64. While housing affordability for the three oldest groups began to rebound in 2011-12, housing affordability for the youngest group (18- to 24-year-olds) remained flat. Moreover, three of the four age categories still have not recovered to their pre-recession rates; only those who were 65 or older experienced stronger rates of housing affordability in 2016 than at the onset of the recession. It is also worth explicitly noting that these rates are low by an absolute standard of housing affordability.

Policy Proposals to Improve Financial Stability for Young Californians

By illustrating how the recession impacted different age groups of Californians, we aim to bring attention to how state policy decisions influence generational equity. The data shows that young Californians fared worse than older age groups along the dimensions of employment and income, and housing affordability. Moreover, income for young Californians differed drastically by region and race/ethnicity. For the 18 to 24-year-olds enrolled in college in 2016, these financial problems may have been compounded, since tuition increased 65 percent from 2008-2018 across 4-year colleges in California when adjusting for inflation. [17] And had it not been for the ACA, it is highly likely that many young adults in the Golden State would have gone without health insurance in the post-recession recovery period. The state can take significant steps to improve the welfare of young adults and mitigate the impacts of a future recession by implementing the following policies.

Invest in higher education: At least half of young Californians who graduate from a four-year college today have student debt, with the average debt load approaching $23,000 in 2017. [18] This is especially problematic for young people who start off their careers during recessions or recovery periods when employment opportunities for young people may be scarce. One of California’s key budgeting challenges comes from the state’s reliance on the personal income tax as well as the capital gains tax, which are extremely volatile during economic downturns. [19] During the 2008 recession, major cuts were made to K-12 and higher education due to insufficient state revenue. [20] We recommend that policymakers find dedicated sources of revenue for higher education that can outlast future downturns. For example, a 2018 report from the Institute for Policy Studies outlines a strategy to re-establish an estate tax in California to specifically fund higher education. [21] The authors estimate an estate tax would generate an additional $4 billion in annual revenue that could be used to significantly reduce student tuition for the state’s 2.5 million students enrolled in California’s public higher education institutions. 

Implement an Equal Opportunity Grant: In the absence of family assistance or nominal earnings from work during their high school years, young adults today enter the labor market or college with little to no savings. As a remedy, we suggest that California consider the implementation of an “Equal Opportunity Grant.” This grant would be available to all young adults starting at age 18 and phase-out with each additional year of age until recipients are no longer eligible (e.g., 30 years old). Such a grant would specifically help to ameliorate the young adult income disparities documented in this article. The phase-out structure of this program would also help to mitigate any negative labor supply effects associated with traditional cash assistance since it is possible to substitute toward less work but not to substitute toward a younger age.

Expand the Earned Income Tax Credit: Governor Gavin Newsom’s budget included an expansion of the Earned Income Tax Credit (EITC), which could help young workers offset the high cost of housing in California and address the income loss young workers experienced during the recession. However, proposed increases to the EITC for childless workers are modest. The disparity between state EITC transfers to childless workers and workers with children would remain quite large, particularly among adults with the lowest incomes. [22] This is particularly problematic when considering the fact that 91 percent of low-income young adults in California do not have children. [23] Since the EITC is means-tested — meaning it targets low-income individuals and families — significant expansions to it for childless workers may help to ameliorate the racial-income gap among young people that we have shown in this paper. Prior research has shown that state EITC’s have the largest poverty reduction effect for people of color. [24] For these reasons, we recommend increasing the EITC significantly for childless workers.

Expand Medi-Cal to young adults: On the health care front, Governor Newsom’s budget expanded Medi-Cal coverage to eligible young adults ages 19-25 regardless of immigration status, which has the potential to impact 138,000 undocumented young adults. [25] The state has had significant successes improving health insurance coverage among young adults (as seen in Figure 2) but important gaps in health coverage still remain among undocumented youth. To the extent that this policy successfully increases coverage of uninsured undocumented young adults, the expansion in Medi-Cal would improve the overall insurance rates among young adults. 

Build more housing: Governor Newsom’s budget has the potential to indirectly impact young people’s lives through new  housing initiatives. The enacted 2019-20 budget identified ways to make housing construction more attractive to developers and encouraged development of low- and moderate-income housing. For example, one-time funds of $500 million were allocated for the Mixed Income Loan Program, which will incentivize developers to build more mixed-income housing. The budget also expanded the state housing tax credit program to encourage more residential rental developments, and includes incentives for local governments to rezone for greater density and speed up housing production. [26] We recommend that the governor and legislature focus these efforts in high density metropolitan areas where higher paying jobs are located for young people.

Final Reflections

When making important budgetary decisions, state policymakers must consider the impact the state budget has across different generations. While Governor Newsom supports several of the proposals listed above, much of the governor’s policy priorities focus on programs that would benefit generations on either end of the age spectrum. For example, the governor’s budget paid down billions of dollars in unfunded pension and health care liabilities in the California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS). The governor’s budget also committed significant funding toward early childhood programs and anti-poverty measures for children. Much more could be done, however, to focus on single, working-aged young adults who came of age during one of the most severe economic crises in U.S. history and experienced harsh losses in income and employment.

Stepping back from the governor’s policy priorities, the state is currently undergoing major demographic shifts. California’s 65+ population is expected to nearly double by 2060, while the population of young people is predicted to decrease significantly in the coming years.27 A ‘greying’ state will mean higher healthcare costs, more pension payouts, and more funding for long-term care services, but with fewer working adults to support an older population. Meanwhile, the next recession may be just on the horizon and California’s General Fund revenue remains extremely sensitive to fluctuations in income tax and capital gains.28 With fewer young people to cover the growing cost pressures of programs for the state’s aging population, alongside the instability of state revenue, young people may get “crowded out” of programs that directly benefit them throughout their lifetime.

These trends result in a ‘generational squeeze.’ Young people who began college and careers in the aftermath of the recession not only experienced financial setbacks with rising tuition, lower employment and wages, and higher costs of living, but also will be responsible for supporting benefits for older generations that did not experience the severity of the Great Recession in the same way. California policymakers should acknowledge generational equity and recognize that many young adults started their life paths during turbulent economic times and face an uncertain economic future.

Erin Coghlan is Policy Director at the Berkeley Institute for Young Americans, and holds a PhD in Education Policy from UC Berkeley. James Hawkins is Associate Director at the Berkeley Institute for Young Americans, and is a GSPP alumna (MPP 2018).


Endnotes

  1. Robert Rich, “The Great Recession: December 2007-June 2009.” Last modified November 22, 2013, https://www.federalreservehistory.org/essays/great_recession_of_200709
  2. Sylvia Allegretto, A post-Great Recession overview of labor market trends in the United States and California (Berkeley, CA: Center on Wage and Employment Dynamics, Institute for Research on Labor and Employment, 2018).
  3. See for example: 
  4. Sylvia Allegretto, A post-Great Recession overview of labor market trends in the United States and California (Berkeley, CA: Center on Wage and Employment Dynamics, Institute for Research on Labor and Employment, 2018).
  5. Idem.
  6. California Budget Project, Falling behind: The impact of the Great Recession and the budget crisis on California’s women and their families (Sacramento, CA: California Budget Project, 2012). 
  7. Sarah Bohn and Eric Schiff, The Great Recession and distribution of income in California (San Francisco: Public Policy Institute of California, 2011). 
  8. Sylvia Allegretto, A post-Great Recession overview of labor market trends in the United States and California (Berkeley, CA: Center on Wage and Employment Dynamics, Institute for Research on Labor and Employment, 2018).
  9. James Hawkins, College Attainment (& Age) in the United States (Berkeley, CA: Berkeley Institute for the Future of Young Americans, forthcoming 2019).
  10. Veronica Terriquez, and Oded Gurantz, “Financial challenges in emerging adulthood and students’ decisions to stop out of college.” Emerging Adulthood, 3, no. 3 (2015): 204-214.
  11. Michael Mitchell, Michael Leachman, Kathleen Masterson, K., and Samantha Waxman, Unkept promises: State cuts to higher education cut access and equity (Washington, DC: Center on Budget and Policy Priorities, 2018).
  12. Edward R. Berchick, Emily Hood, and Jessica C. Barnett, Health Insurance Coverage in the United States: 2017. Current Population Reports, P60-264 (Washington, DC: United States Census Bureau, U.S. Department of Commerce, Economics and Statistics Administration, 2018). 
  13. Joel C. Cantor, Alan C. Monheit, Derek DeLia, and Kristen Lloyd. “Early impact of the Affordable Care Act on health insurance coverage of young adults.” Health Services Research, 47, no. 5 (2012): 1773-1790.
  14. Shannon McConville, Just the facts: The Affordable Care Act in California (San Francisco, CA: Public Policy Institute of California, 2018).
  15. See for example: Jesse Rothstein, “The Great Recession and its aftermath: What role for structural changes?” RSF: The Russell Sage Foundation Journal of the Social Sciences, 3, no. 3 (2017): 22-49; and Jesse Rothstein, “The lost generation? Scarring after the Great Recession” (Working Paper, Berkeley, CA: Goldman School of Public Policy, 2019).
  1. See for example: Sheldon Danziger, Koji Chavez, and Erin Cumberworth, “Poverty and the Great Recession” (Palo Alto, CA: The Stanford Center on Poverty and Inequality, 2012); and James Hawkins, “The Rise of Young Adult Poverty in the U.S.” (Berkeley, CA: Berkeley Institute for the Future of Young Americans, 2019).
  1. Michael Mitchell, Michael Leachman, Kathleen Masterson, K., and Samantha Waxman, Unkept promises: State cuts to higher education cut access and equity (Washington, DC: Center on Budget and Policy Priorities, 2018).
  2. The Institute for College Access and Success. “Project on student debt: State by state data.” Last modified in 2018, https://ticas.org/posd/map-state-data#
  3. Mac Taylor, CalFacts 2018 (Sacramento, CA: Legislative Analyst’s Office, 2018).
  4. Mac Taylor, The budget package: 2011-12 California spending plan (Sacramento, CA: Legislative Analyst’s  Office, 2011). 
  5. Chuck Collins, Josh Hoxie, and Jessicah Pierre, Restoring opportunity: Taxing wealth to fund college for all in California (Washington, DC: Institute for Policy Studies, 2018).
  6. Gabriel Petek, The 2019-20 budget: Analysis of the Earned Income Tax Credit Expansion (Sacramento, CA: Legislative Analyst’s Office, 2019). 
  7. James Hawkins, Poverty (& Age) in the United States (Berkeley, CA: Berkeley Institute for the Future of Young Americans, forthcoming 2019).
  8. Douglas J. Gagnon, Marybeth J. Mattingly, and Andrew Schaefer, State EITC programs provide important relief to families in need. (Durham, NH: University of New Hampshire, Carsey School of Public Research, 2017). 
  9. Sammy Caiola, “Young undocumented Californians cheer promise of health benefits.” NPR, July 11, 2019, https://www.npr.org/sections/health-shots/2019/07/11/739536305/young-undocumented-californians-cheer-promise-of-health-benefits
  10. Governor Gavin Newsom, California State Budget 2019-20 (Sacramento, CA: State of California, Department of Finance).
  11. Melanie Mason, “California’s senior population is growing faster than any other age group. How the next governor responds is crucial.” Los Angeles Times, October 7, 2018, https://www.latimes.com/projects/la-pol-ca-next-california-demographics/.
  12. Mac Taylor, “CalFacts 2018” (Sacramento, CA: Legislative Analyst’s Office, 2018).