It is unclear exactly how long it will take for the U.S. economy to recover, but it appears certain that the healing will be long and slow, potentially lasting more than a decade. For young Americans just starting their careers, though, the effects could last a lifetime.
Recent data suggests that the economic downturn can profoundly impact major life decisions and limit choices for people in their 20s and early 30s: young American adults have high unemployment, are buying fewer homes, and putting off childbearing. This may make for a longer-term cultural shift in America, as a generation scarred by economic woes finds that the American Dream to which older generations have aspired—a house, 2.5 kids, a steady career, and financial security—is increasingly out of reach.
Perhaps the most obvious way that young people have been hit by the recession/downturn is unemployment. The labor market has been particularly cruel to young people, According to analysis of Census data, employment among adults age 16 to 29 was at 55.3 percent in 2010, down from 67.3 percent in 2000 and the lowest level since the end of World War II.
Speaking to Congress' Joint Economic Committee in 2010 about young Americans' economic challenges, Columbia University Associate Professor of Economics Till von Wachter laid out the long-term implications of entering the labor force during a downturn: "Entering the labor market in a large recession such as the current one can lead to reduced earnings for up to 10 to 15 years."
Von Wachter also spoke of the phenomenon of "cyclical downgrading," in which workers "take jobs at worse employers than they otherwise would have had." Though eventual promotions or job switches can mitigate the effects of this phenomenon, some individuals never fully recover from the initial setback of taking inferior work for lower pay. Indeed, even if a recovery in the job market were to come soon, those who are even a few years out of college could find themselves at a disadvantage. Years of unemployment or underemployment can lead to a deterioration of skills. Add to that increasing competition in the labor force from younger college graduates, and even a recovering job market might not be friendly to Generation Y.
Younger Americans are also less able to live on their own. As the Census Bureau reported last month, the number of 25- to 34-year-olds living with their parents is up 25.5 percent from 2007. And for those living independently, home ownership is less and less common—a trend that has been going on for decades. According to a new report from Fannie Mae, home ownership rates for 25- to 34-year-olds has decreased by 9.6 percentage points since 1980, and also dropped for 35-to-44-year-olds by 9 percentage points over that period. Meanwhile, the rate for elderly households grew by 7.4 percentage points over the same time period.
Freddie Mac additionally reported this week that young Americans' home ownership dropped significantly even within the past year. While U.S. home ownership fell 1.5 percent in 2010, to 65.9 percent, young adults saw larger decreases, with owner rates falling by 4.4 percent (to 21.9 percent) for people under 25 and 7 percent (to 34.7 percent) for people 25 to 29 years old.
The delay in home purchases may be due to several factors, like income and job instability, increased likelihood of foreclosure for newer owners, or conscious decisions to put off homebuying. Becoming a first-time homebuyer is difficult and perhaps inadvisable during a period of instability. "I think if I were a youth in that age group, I'd be focused more on maintaining my ability to move and be mobile," says Jeffrey Lubell, Executive Director of the Center for Housing Policy.
But the dream of owning a home has not died yet for America's young adults. Paul Bishop, vice president of research at the National Association of Realtors, says surveys show that "the desire to be a homeowner is still very much there among potential first-time homebuyers and the younger group of people who are now currently renting."