Young Australians starting their career right now will lose $32,000 in income over the next decade, new research has revealed.
EY data found that 21-year-olds entering the workforce this year will cop cumulative income losses over the course of the next 10 years equal to $32,000, meaning they’ll need to work four more months at the end of the decade to make up the difference.
“It is unlucky timing,” Jo Masters and Bonnie Barker, EY economists stated.
“A recessionary jobs market can have a disproportionate medium-term impact on those early in their career and with limited experience, through lower wage growth and fewer opportunities and flexibility.”
The cumulative income losses would occur as a result of lower wage growth, according to the report.
Without a recession, the income growth for a 21-year-old over the next decade would have been around 117 per cent. That compares to 133 per cent for the decade between 2006 and 2016.
Without a recession, their income would have risen from $48,000 to $105,000.
But people starting their career in a recession experience a “large initial loss” of earning of around 9 per cent, which fades slowly.
“While it might feel like Australia’s economy will bounce back once lockdown is lifted, that won’t change the impact the current recessionary job market will have on recent school or tertiary graduates,” the report found.
“That is, the class of 2020 will be adversely affected, whether Australia’s economy starts to recover this year, or later.”
Starting out in a recessionary economy doesn’t just mean lower incomes - it also means a $22,000 lower borrowing capacity for a first home, and $30,000 less in their nest egg.
What can young people do about it?
How well young people make it through this critical period will depend on whether they choose to be a passenger or a driver of their economic future, the co-authors stated.
“Proactively making small changes to habits and mindset now, such as increasing savings rates, boosting superannuation contributions and potentially moving jobs if the opportunity presents to upskill, improve the job skills match or boost income can make a material difference,” they stated.
In fact, making an extra $300 contribution to their superannuation each year could offset the impact of the recession on young Aussies’ nest egg at retirement, the authors found.
And, adopting the 20/30/50 rule for savings, that is, saving 20 per cent of your income each paycheque, will save young Australians an extra $28,000 over the course of the decade.
“Ultimately, proactivity is going to be key for young Australians entering the workforce in a recession,” the report stated.
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