Generation X And The New Frugality
January 31, 2014 | By Neil Howe
This editorial originally appeared in Forbes.
Kiplinger recently reported that December’s poor job growth will be offset as the economy slowly starts to recover in the months ahead. And the newest Labor Department report shows that the unemployment rate, now at 6.7%, has dropped steadily since peaking three years ago. But be warned: these numbers don’t tell the whole story.
What the media fail to emphasize is the steep drop in the labor force participation rate during this time. From October 2010, when our official jobless numbers peaked, to January 2014, the participation rank sank from 64.4% to 62.8%. Over the same period, the share of all Americans ages 16 and over who are employed has hardly budged, moving from 56.5% to only 56.6%. While bulls tout a jobs “acceleration,” the sad fact is that total U.S. jobs have shrunk by 2 million and full-time jobs by 5 million since just before the Great Recession, even while our population has grown by 14 million.
Explaining The Steep Decline In Labor Force
To explain this steep decline in labor force participation, analysts in the national media blame population aging. But aging can’t be the culprit since Boomers are now enlarging the ranks of the only age bracket (age 55 and older) in which participation is actually rising and jobs have continued to grow. By delaying their retirement, Boomers are the countertrend in this story of declining labor force attachment—which is being driven almost entirely by Americans under age 55.
Let me suggest another explanation: the emergence of a new social mood, an enduring “New Frugality” that has Americans of prime working age, mainly 25 to 55, spending less, working less, and buying cheaper. Yes, the Great Recession incited tighter wallets and fewer working hours, and the continued economic stagnation has certainly sustained it. But something deeper is also driving this behavior: a Generation X-led shift in Americans’ attitudes towards time and money. This massive generation born in the 1960s and 1970s, now dominating the ranks of prime-age householders, helps explain Deloitte’s recent finding that a full 94% of consumers plan to keep spending at current levels even if the economy improves.
The Generation X Mentality
Why this generation? Individualistic, undersocialized Xers never subscribed to the “Keeping Up With the Joneses” mentality. Even when they do care about what others think, they prefer to appear thrifty, rather than flashy. Today’s most influential young entrepreneurs, like Twitter’s Jack Dorsey, show they’ve made it without donning Tom Ford suits.
Xers also prefer to do things for themselves. They don’t trust others to get the job done right and consider paying others for services they could perform themselves inefficient. Why buy something new when you could employ crafty DIY tactics for half the price? Why pay nannies to look after your kids while you work to be able to afford their services? And why work law firm hours at today’s high marginal tax rates, when you’ll just have to give more of your money back?
Cutting costs extends beyond the home into business. The depths of the Great Recession coincided with the elevation of many Xers into senior management positions at Fortune 500 companies. Most of these companies have since recovered their profit margins more by relentless cost-cutting than by increases in employment and production. In most industries, even capital spending remains beneath its pre-recession peak. Pragmatic Xers focus on what they can control, and while they can’t control sales, they can control expenses.
Generation X And The Workforce
As the generation hardest-hit by the Great Recession, Xers are finding ways to derive satisfaction from working less. Today’s young moms and dads—by and large Xers—are prioritizing time with their children. Some workers are ditching Wall Street jobs for more fulfilling careers with shorter hours, whether at a tech startup or as a playwright. Because these Xers are content with spending less, their career changes aren’t as taxing. Others are choosing to relocate to lower-cost areas like Texas, which welcomed 106,000 migrants from other states just last year, and leaving behind high-stress, higher-earning lifestyles.
Pundits keep offering theories about when America will return to pre-recession spending, GDP growth, and employment rates. But if Xers continue to work and spend according to a New Frugality ethos, these milestones will remain elusive. LFP could easily remain plateaued at today’s low rate until late-wave Xers begin to retire and a new generation—the Millennials—energize the workforce with confidence, optimism, and fresh ambition.