Are Millennials the Poorest Generation?: An Interview with Jeremy Horpedahl

The following is an interview conducted by Profectus Managing Editor Kali Keller with Jeremy Horpedahl, director of the Arkansas Center for Research in Economics and an associate professor of economics at the University of Central Arkansas. We discuss his research on generational wealth and the economy.

Kali Keller: You have written a lot about generational wealth and how today’s young people are faring compared to previous generations. Before we dig into the data, can you give us a definition of generational wealth and the types of measures it does and does not include?

Jeremy Horpedahl: Wealth is a measurement of the difference between assets and liabilities (or debts). For most households, major assets include their home and retirement accounts, while debts can include mortgages, credit cards, or student loans. The difference between these two is how we define wealth. For most households in the US, assets exceed liabilities, and for the median household in 2022, it was about $200,000.

When I talk about “generational wealth,” it involves adding up all the assets and liabilities of a particular generation and dividing it by the total population of that generation, to give an average wealth level. Alternatively, there is some data that allows us to look at the median level of wealth for a generation, the person who is right in the middle of the distribution. Median wealth levels are generally lower than average wealth levels, but they tend to move in the same direction.

Kali: The popular narrative is that Millennials, and now Gen Z, are worse off financially than their parents and grandparents. Some have even called Millennials the “poorest generation.” What does the economic data say on this subject?

Jeremy: The economic data suggests that this narrative was true when young people first entered the labor force, but it is no longer the case. For each generation, when we look at their average or median wealth levels, they tend to fall behind past generations in the beginning. There are many reasons for this, but I would say a big reason is education and related debt. Young people today are much more likely to attend and graduate from college than past generations, which puts them in a tough starting position: they have more debt, and they miss out on a few years of earning income while they are in college.

But once a generation is in their mid-30s, they tend to catch up to and eventually exceed past generations. Their higher levels of education allow them to start earning higher incomes than past generations right away, and as they pay down debt and accumulate assets, they can very quickly catch up when we measure their wealth.

Kali: How much of this negative narrative is being driven by the so-called “vibes” economy?

Jeremy: The “vibes economy” is interesting, but it’s also hard to define. A lot of people might feel that they are worse off than past generations, or at least worse off than they could be. If a young person talks to their parents about how much their first house cost and compares it to housing prices today, it will be very depressing. And also, when we have a high rate of general price inflation—not just housing, but most goods and services—as we did in 2022 and the first half of 2023, it can really feel like we are getting worse off.

That’s why it’s important to look at the data. Yes, housing prices have generally gone up faster than incomes in recent years and decades, but most other prices are growing slower than housing or income. We need to look at the complete picture, which we usually achieve by inflation-adjusting incomes and wealth. The inflation adjustment certainly includes the cost of housing: it’s the largest single component! But it’s not the only component. For example, while we have seen massive inflation in grocery prices the past three years, for roughly a decade prior to that, grocery prices were essentially flat. At the same time, incomes and wages were rising. We have to account for all of that, not just focus on one thing like housing (even if it is important).

To be more concrete, in 2022, prices of goods and services in the U.S. increased much faster than incomes or wages. So, the “vibes” were feeling bad—and that was accurate. But in 2023, wages increased faster than prices. Many people may not have noticed that (especially if you personally didn’t see a raise as big as the national average), and the still-high prices of groceries, housing, and everything else may have made the vibes still feel bad, even though 2023 was a good year economically.

Kali: You mentioned two issues that often come up in this debate: student debt and housing affordability. How should we think about these concerns?

Jeremy: Student debt is an important issue, but it’s not one that I think we need much public policy to address. The data is quite clear that this is only a temporary problem for most students that take on debt. A new paper by economists Kevin Corinth and Jeff Larrimore looks in detail at the income of different generations and the cost of college. (I also wrote about this paper on my blog.) While Millennials do pay a lot more for college than Gen Xers did, the research shows that it only takes three years for Millennials’ increased income to make up this difference in college costs. After those three years, Millennials then have an entire working career of higher incomes than Gen X and earlier generations.

Housing affordability is the clearest example where we need policy reforms to fix a problem that is slowly developing into a national crisis. Once confined to California and the Northeast, housing prices for almost the entire U.S. are reaching levels that are unaffordable for most young people, a problem that had been getting worse for about a decade, but really got bad in the past three years—and that’s before we get into the high mortgage rates today.

What’s to be done? The simple answer is that we, as a nation, need to build a lot more housing. There is a huge supply shortage, which has increased demand. But how to do this is not so simple. Housing policy is mostly set at the local level by cities, with some influence by state laws. There is no national policy solution to this problem. The main culprit is zoning laws and other land-use regulations that prevent building anything other than single-family homes and often require large lots relative to the home size. These policies create housing shortages. There’s nothing wrong with single family homes—I live in one and enjoy it very much—but mandating it by law prevents other forms of housing from being built, which are more in-line with demand from potential home buyers. It’s often current homeowners that oppose any changes to housing policy.

Fortunately, some cities have made progress on reforming their housing policy. For example, Minneapolis enacted a serious of housing reforms in 2018, including one that essentially eliminated single-family zoning. This doesn’t mean you can build a 50-story apartment building on every lot in Minneapolis, but citywide you can now build duplexes or triplexes on most residential lots. There haven’t been a lot of these new types of housing constructed yet, but the small increase has been enough to moderate housing prices in Minneapolis compared to similar cities. Even in California there have been several successes on this front, in many cases with state law requiring cities to allow more dense housing in certain situations.

Kali: A lot of this discussion is really about the American Dream and social mobility. In our recent social mobility index, Arkansas ranks 48th overall and, in fact, ranks last in the nation for Entrepreneurship and Growth (regulation, taxes, business dynamism). What does your research say about how entrepreneurship and economic growth support social mobility?

Jeremy: Social mobility is an extremely important aspect of the American Dream—some might say the most important. One of the best ways to encourage social mobility is to allow people to start new businesses, some of which will fail, but many will become the successful businesses of tomorrow. Arkansas is an interesting state because, despite ranking very low on measures of income, we have a large concentration of Fortune 500 companies headquartered here. However, most of these businesses were founded a long time ago.

Walmart is, by any measure, the largest company in the world. It was founded in Arkansas in 1962 and is still headquartered here. Walmart is a wonderful part of this state’s economy and culture, but where will the Walmart of tomorrow come from? Many of the other large companies in the U.S. today were founded much more recently than Walmart. The high level of regulation and taxes in Arkansas means that it’s very hard for businesses to get started and grow today, which wasn’t the case in 1962. By improving our regulatory and tax environment, we can make the American Dream more of a reality. (These are two of the main areas of research we work on at the Arkansas Center for Research in Economics.)

Kali: In addition to your job as an academic scholar, you share economic data on X (formerly Twitter) and write for a popular audience at the blog “Economist Writing Every Day.” What motivated you to start this work, and why is it important?

Jeremy: I love teaching in the classroom and writing academic articles, but I can only ever reach a limited audience that way. Throughout my career, I have tried to expand my teaching beyond the classroom. Writing for X and my blog (which I write with several other economists) is one of the main ways I have tried to expand the audience I reach to talk about economic challenges and economic progress. I also try to reach other audiences outside of the classroom, such as appearing in local media as often as they invite me, including TV, radio, and newspaper interviews and op-eds.

Lots of people are interested in economic issues, but they often don’t have the framework to understand what is going on in the world or how to improve things. I try my best to provide that context for my “students,” broadly defined. But I also learn a lot by doing this outreach through feedback I get or other questions that are asked. I think most academics would love to do this too, but the time constraints of their job and personal responsibilites make it hard. So I have consciously tried to carve out space in my calendar to do these other activities.

Kali: Related to that, what is one piece of economic data you wish everyone better understood?

Jeremy: The biggest one is the relationship between rising earnings and rising prices. Over almost every time horizon, average incomes and wages increase faster than prices. Years like 2022 where this doesn’t happen are unusual. And the cumulative effect of this is that we have much higher incomes and wealth than past generations. But the big picture isn’t just a number on paper, it’s the increasing number of real goods and services that we can buy, including new technologies that weren’t available or even imaginable to past generations. That’s the big story of economics, and for the past 200-300 years, countries like the U.S. have essentially had this happening all the time, with the exception of occasional recessions (like in 2020) and bouts of inflation (like in 2022).

Kali: Overall, are you optimistic or pessimistic about economic policy and the future economy for Millennials and Gen Z?

Jeremy: I am extremely optimistic, both when I look at the data and history, but also because I interact with a lot of young people inside and outside the classroom. In general, I find that the negative stereotypes about young people are wrong. They are hard working, understand what it takes to make the world better, and want to do so. They can be a bit pessimistic at times when they compare themselves to past generations, but that’s why I think this data on generational wealth and income is so important, to give them the optimistic picture.

But my optimism doesn’t mean we should do nothing to improve things. As we talked about earlier, the biggest challenge right now is housing affordability. And I’m not entirely optimistic that we’ll solve that in the short run, and the crisis will just get worse. But I don’t want to end on a pessimistic note; overall, I am optimistic about the economic potential of Millennials and Gen Z, and we also need to address to affordability issue.

Jeremy Horpedahl
Jeremy Horpedahl
Jeremy Horpedahl, PhD, is an associate professor of economics at the University of Central Arkansas, as well as director of the Arkansas Center for Research in Economics at UCA. His research has been published in peer-reviewed journals including Public Choice, Econ Journal Watch, and Constitutional Political Economy. His popular writings have been published in the Arkansas Democrat-Gazette, the Chicago Tribune, Real Clear Policy, and US News and World Report. He has appeared on NPR’s Marketplace as well as many television and radio programs in Arkansas. He received his Ph.D. in economics from George Mason Unviersity in 2009. You can read his weekly posts on the Economist Writing Every Day blog.
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