Income trends differ considerably between age groups in European countries. While in most countries, the income of younger people stagnated or declined between 2008 and 2017, it increased for older adults, most notably those aged 60 and older.
Bernhard Hammer, Sonja Spitzer and Alexia Prskawetz (Wittgenstein Centre and TU Wien) studied age-specific income trends in nine European countries. Based on data from National Accounts and the European Union Statistics on Income and Living Conditions, they quantify age-specific changes in income between 2008 and 2017 and deconstruct these changes into employment, wages and public transfer components.
In most countries, the period 2008-2017 is characterised by a stagnation or decline in the income of households and an increase in public sector redistribution. While GDP per capita decreased only in Greece and Italy between 2008 and 2017, income per capita dropped in six out of the nine analysed countries, with the largest decline in Greece, Italy and Spain. The period was characterised by an increase in taxes and social transfers relative to income. In particular, the ratio of benefits relative to primary income grew in all countries, and income taxes relative to primary income increased in seven of nine countries and stagnated in two.
Income trends vary across age groups with a disadvantage for younger people. The differences in age-specific income trends are particularly high in Southern Europe. In Italy and Spain, mean income in the population aged 20-39 declined by about 17 percent, and for the population aged 40-59 by about eight percent. By contrast, income increased for the population aged 60 and older. In Greece, income declined for all age groups, but much less for the population 60 and older. In Austria, France, Slovenia and Sweden, the mean income of the population 20-39 merely stagnated, while it increased strongly for the population aged 60 and older.
A decomposition analysis revealed that the main drivers of these age-specific differences in income trends are (1) a decline or stagnation of employment rates and income of the 20-39-year-olds, (2) an increase in employment in the older age groups 40-59 and 60+ and (3) a strong increase in benefits for the population 60 and older. The increase in employment and income among the population 60 and older population is mainly due to increased labour force participation and higher pensions for women.
In summary, this study revealed important intergenerational disparities in the development of individual income, especially in countries that were hit hard during the previous financial crisis. Knowledge about age-specific income trends may help us to better understand the consequences of economic crises and to find better, generationally balanced policy responses.