The Generational Gap in Wage Expectations

Both the Brexit vote and the Trump related polls show a consistent pattern. Young people are OK with globalization, immigration, economic integration. Older(er) people are not. The presumption or implied conclusion is that old people can’t adjust to the new world. Perhaps thy are racists or just nostalgic for a time that never existed. They need to get with the program and accept the free flow of ideas and people.

What if those old people know something the younger ones don’t. Perhaps their recollection of a better economic time is not just nostalgia. Thirty years ago an unskilled laborer made $9/hour vs $20/hr today but houses cost seven times  more (now). Fifty percent of the workers in America earn less that $12/hr. today. Thirty-two percent of millennials live in the basement of the house of the parent who used to make those high(er) wages. For the first time ever, more millennials live at home than live on their own! They are economic failures, by any measure. I don’t mean to blame them. It’s just that such failure has produced quiescence rather than fury. They have accepted their fate like a prisoner on death row condemned unfairly yet condoning the system nonetheless. Is their opinion on trade and immigration superior to that of the older people who know that there was a better time, when there was a growing and large middle class.

In the UK the unemployment rate is 5.4% but the youth rate is 16%! Shouldn’t they be protesting against unlimited labor immigration rather than voting to stay in Europe. Ah but perhaps the EU isn’t the problem and they get this, just like bad trade deals have nothing to do with abysmal wage growth in the US. Unfortunately this equation is too simple and powerful to overcome: An excess of global labor in low income countries will destroy local wages unless you protect against its inflow (either from immigration or outsourcing). Half of all the new jobs created in the EU over the last seven years have been in the UK and yet wages have been stagnant. The countries of the EU that have not produced new jobs, have youth unemployment at 25-40%. How did the intellectuals of England fail to see the scale of the problem?

The question has to be changed to: What matters more – labor substitution through migration that destroys wages or a possible reduction in exports to the EU by virtue of elevated post Brexit tariffs? The answer is simple – stop the migration and work relentlessly to get good trade deals with rich countries and no deals with poor ones. England should become the low regulation, low tax haven in Europe – like Ireland, and Switzerland combined but with better labor, food, and (more) housing. It’s time for UK trade representatives to earn their keep.

The younger generation has given up on prosperity – why should we listen to them?

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