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Growing pains: The future of incomes for lockdown Gen-Z

The youth labor market is highly sensitive to economic cycles, with young people more likely to be in precarious employment than any other age group. After the 2008 Great Financial Crisis (GFC), it took years to recover across Europe, though youth incomes never went back to pre-GFC levels in Spain. We estimate that the five-year accumulated losses were higher for youth in Spain than the annual net median income pre-GFC (Purchasing Power Parity (PPP) 17,067 or 118% of 2008 net median income (NMI)). In France, we observed the second highest accumulated losses (PPP 12,337 or 79% of 2008 net median income) due to high pre-GFC income growth for this age cohort. Other countries had more “demure losses” (ITA: PPP 4,771 or 34% of 2008 NMI; AUT: PPP 7,137 or 37% of 2008 NMI; DEU: PPP 7,376 or 42% of 2008 NMI). Pre-crisis net median incomes were reached in Germany and Switzerland in 2011, while France recovered in 2012 and Italy in 2016.

It could take even longer to recover from the impact of Covid-19, especially in Switzerland, Austria, Italy and Germany. By forecasting the net median income for 18-24 year-olds and calculating the five-year cumulative losses, we find that Spain (PPP 12,174 or 85% of 2019 net median income) and France (PPP 7,407 or 40% of 2019 median income) will have lower losses compared to the pre-Covid-19 trend only because of their meager pre-crisis growth. But for all other countries, the impact of the pandemic far exceeds that of the GFC: CHE: PPP 9,625 or 35% net median income, AUT: PPP 9,446 or 39% of 2019 net median income, ITA: PPP 7,958 or 52% of 2019 NMI and DEU: PPP 17,232 or 81% of 2019 NMI. It could take until 2024 for net median income levels to return to pre-crisis levels in most countries, but Germany and Switzerland might take an extra year to recover due to higher pre-Covid income growth.

With education also disrupted, especially for youth in Spain (46.5%), Austria (42%) and Switzerland (40.2%), the pandemic will hinder human capital accumulation, punishing young workers further and widening already present intergenerational inequalities. This calls for policymakers to expand support programs focused on the youth, and support workers through this adjustment with (re)training and (re)skilling to avoid “job scarring”, whereby young people are pushed into long-term unemployment, with consequences for the economic recovery.


Patricia Pelayo Romero
Allianz SE