How the Economy Differs for Workers, Consumers, and Savers – Harvard Business Review

By many measures, the first two decades of the 21st century have been a time of opportunity and abundance — notwithstanding the 2008 global financial crisis. Our world has been transformed by the internet and smartphones. A billion people have come out of poverty. Employment relative to population in OECD countries is now above 70% — a record. And most economies are once again expanding at a steady if not spectacular clip.

Yet while the economic gains for many people in advanced economies are significant in some respects, in others they have been eroded by unexpected challenges. We examined a range of economic indicators, such as employment and wage growth, benefits, prices for basic and discretionary goods and services, and savings for retirement, and found that outcomes for individuals in three roles — as workers, as consumers and as savers — present a more nuanced picture than the aggregate data might suggest.

For individuals as workers, employment is much higher than it was at the turn of the century. In the 22 OECD countries we looked at, there were 45 million more jobs in 2018 than in 2000, 31 million of which went to women. There was also a wider array of alternative income-generating activities and work arrangements, which gave millions newfound flexibility.

But more precarious working arrangements — from zero contract hours (where workers are not guaranteed work yet must be available on demand for employers) to work fissuring (where workers are not employed by the company that benefits from their labor) — have also been gaining ground, undercutting economic security for many. Moreover, wages have stagnated for most people in many of these countries; annual average wage growth since 2000 has been just 0.7%.

For consumers, technology and globalization, along with deregulation, have substantially reduced the cost of many discretionary goods and services, from communications to clothing. Data costs have dropped almost 90%, as usage has surged tenfold.

But house rental prices — often the biggest-ticket item in the household budget, accounting for as much as one-quarter of spending on average — have soared. Healthcare and education costs have also risen in many countries.  Holding all else constant, consumers in advanced economies would have to work an average of four additional weeks per year to be able to consume the same amount of housing, healthcare, and education as they did two decades ago.

For savers, the good news is that mean wealth is back up and above where it was in 2008, although median wealth, perhaps a better measure, is still more than 20% below pre-crisis levels. Some of the biggest shifts of the past 20 years are related to savings. As the working-age population lives longer and retires later — a cause for celebration — the pressure on pension plans has grown dramatically. Moreover, responsibility for retirement savings has shifted from institutions to individuals. Governments in more than half the OECD countries have extended out the retirement age. In the private sector, many defined-benefit pension plans have changed to defined-contribution ones, where the market risk is borne by the recipient.

At the same time, household savings are down in many countries. More than half the people on average in the 22 countries we looked at didn’t save for retirement in 2017, and just over one-quarter didn’t save at all. And this at a time when saving for retirement is more important than ever, as people live longer.

The shift in the role of institutions does not just affect outcomes for savers. Indeed, our analysis shows a decline in market intervention by institutions across all three arenas of work, consumption, and saving, although the extent of this varies by country. For example, employment protections are lower, a higher share of healthcare and education costs is private, and guaranteed pension levels have dropped. At the same time, spending on public-sector wages and various government transfers to individuals rose from an average of 38% of GDP in 2000 to 41% in 2018, largely because of higher aging-related costs. This dual pattern of lower intervention and higher spending prevailed in most of the 22 economies, regardless of differing market and institutional setups.

These outcomes illustrate how important it is for policy makers and business leaders to look beyond the positive aggregate economic data to what is really happening in people’s lives. Polls suggest that the downbeat public mood in many countries is a reflection of the daily realities many are confronting.

If the next two decades are to be better than the last two, we see a need for concerted action on two fronts. First, it will be essential to sustain and expand the gains achieved so far through continued innovation and productivity, economic growth, job growth and opportunity-creation, business dynamism and competitiveness in a rapidly shifting global economy.

The second priority is to tackle the challenges individuals face, especially the most affected people and places. Outcomes have been favorable for about 115 million individuals equipped for high-skill jobs, individuals for whom discretionary consumption is relatively high compared to their spending on basics, and savers able to accumulate capital.

Yet many more with low skills have not seen similar benefits. Wage stagnation, coupled with the rising cost of basic necessities, is eroding the welfare and opportunities of about 60% of the population. Rising housing costs alone have absorbed more than half of income gains for average households in the U.K., U.S., and some other countries. The same 60% of the population are also vulnerable to the scaling-back of mandatory pensions, since they do not or cannot save enough to make up the difference. Sixteen percent of individuals do not have enough wealth to cover three months of basic costs and 20% — one in five — doesn’t have enough to cover six months.

The under-30 generation is also bearing the brunt of the changing economy. They are having a harder time than their elder peers in finding a secure first job — between 2000 and 2018, the employment rate of young people under 30 actually declined, and those in work are more likely to be on temporary contracts. Climbing on the housing ladder is also harder, given soaring real estate prices and rising rents.

Women and minorities have seen some progress in employment, but they still lag in terms of wages and opportunities. Gender parity is still some ways off: Women in the countries we looked at earn just 85 cents for every $1 a man earns. This in spite of the fact that the gender parity agenda dates back to the late ’60s.

Finally, some regions are lagging. Geography is becoming an increasingly important economic determinant of welfare, in our analysis. Most of the job growth in the United States and Europe over the past decade is coming from a small number of thriving metropoles. These cities are attracting the talent and are the hubs of innovation. But this geographic concentration means that regions left behind face a downward spiral unless they can find ways to make themselves more competitive. And they need help from government and the corporate sector. Mobility, which has also declined, is part of the answer. But moving everyone to high-performance urban hubs is not feasible. And footloose globalization is not sustainable politically and socially.

The next decades of the 21st century are already shaping up to be promising, given the onward march of technological progress that is changing our lives. Many are starting to act, including government. Corporations are refocusing on multiple stakeholders, as they grapple with new challenges including those related to sustainability and climate change — an added factor which could impact the economic outcomes for individuals potentially in regressive ways.

However, more needs to be done given the scale of the challenges. Ensuring that the outcomes for individuals get better and more inclusive is the imperative of our time.

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